Singapore Savings Bond Interest has Hit above 2%

Good news for those who are seeking to get higher interest on their savings. Singapore savings bond is now at 2.01% for first year and continues to increase thereafter. Here's the interest payment schedule for the December SSB at a glance:

Singapore savings bond is a capital guaranteed plan and there is flexibility to sell the bond every month where you will get back your capital and any accrued interest. There is no price movement for SSB so you will definitely not lose any money for this. Just take it as a savings account with good interest and no risk. 

Application will open on 3rd December 6pm and close on 26 December 9pm. Applications can be done on ibanking or ATM machines of DBS/POSB, OCBC AND UOB. 

I may be getting some of this bond this round. The last time I bought the bond the interest was only 1.55% earlier this year. How fast the interest has moved up since then. 

You can refer to this link for more information on this month's bond. 

New Temasek 2.7% bond for retail investors - Should you invest in it?

It has been awhile since I blog as I've been quite busy with my new job as well as other things in life. I didn't really have much time to look at investments lately and have not made any new investment decisions for the past 1 month. However, there are new developments in the investment world which I thought is a good time for me to write about this new bond in the market which will surely be quite popular.

Temasek has just launched a new bond which offers 2.7% fixed interest and matures in 5 years. This is fairly attractive as Temasek is known to be rated AAA where the default risk is low. When buying bonds, it is always important to evaluate the risk even though in this case the risk is low. I will evaluate who can consider and who should not be buying this bond in this article.

Who can consider to buy this bond?

This bond is guaranteed by Temasek which in a way we can safely say it is default free. Just imagine if Temasek is not able to pay back the bond when it matures, then I think Singapore as a nation is also suffering a lot by that time so it is very unlikely that the bond defaults.

The interest offered is 2.7% which is not too much and not too little also. For those who have lower investment risk appetite and willing to invest in the bond till it matures in 5 years, then I would say you can safely invest in this bond with a peace of mind. Bond price will rise and fall according to market conditions but when it matures, the face value of the bond will be paid back. This means that you will definitely get back your initial invested capital at the end of 5 years (the mature date of this bond) as long as Temasek does not go bankrupt.

Let's say if you invest $20,000 into this bond, you will be able to get $540/year in interest payment and will get back $20,000 at the end of 5 years when it matures. This is good for those who can hold the bond all the way.


Who should not buy this bond?

Even though the risk of default is low for this Temasek bond, for those who are not intending to hold the bond all the way till it matures in 5 years should reconsider before investing in the bond. Bond price rise and fall according to market conditions and bond price and interest rates has an inverse relationship. This means when interest rates goes up in the general economy, bond price will normally fall as well. Temasek has said they only guarantee the interest rate and not the price of the bond.

Interest rates has been rising and I would think will continue going up. For those of us who can't hold the bond till the end of 5 years, its not a very wise choice to invest in bonds now. When the bond price drop and we need the money, we will most likely have to sell it as a lower price resulting in a loss. This is not what we want.


How it is different from the Singapore savings bond (SSB)?

I think there is some confusion on the Singapore savings bond which I will address this as well. What exactly is the difference between the SSB and the new Temasek Bond?

While both the SSB and the Temasek bond offers guaranteed fixed interest rates, Temasek's bond price are not guaranteed while the SSB price is guaranteed. We can sell the Temasek bond anytime but the price may be lower than when we first invested in it and therefore we suffer a loss while for the SSB, we can sell it every month and we will always get back the initial capital which we invested in. In essence, the price of the Temasek bond will change while the price of the SSB will not change at all.

For those who are looking at shorter term low risk investment of less than 5 years, the SSB is still a good choice to consider. This months SSB has interest of 1.80% for first year and 1.94% for second year. It still offers quite good interest for zero risk investment. You can refer to SSB rates here.

For the new Temasek bond, you can find out more about it here. The offer has already started and will end on Tue 23 Oct 2018. You can apply through ATM, internet banking or through mobile apps of certain banks.

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1.55% Interest On The Singapore Savings Bond

I have been monitoring the Singapore Savings bonds for quite some time now since its launch in 2015. The interest was not that attractive to me in the past until now when I notice the first year interest for this month's SSB is at 1.55%. This is higher than most fixed deposits currently and definitely a good place to park extra cash in.

The attractiveness of the SSB

What is so attractive for the SSB is that it is capital guaranteed so there is no risk of losing your capital. There is also the flexibility to redeem the bond every month so we do not have to lock in our money inside for one year like what is required for fixed deposits. This presents a very good opportunity to get higher interest while still maintaining the flexibility for our money.

The below table shows the interest for February 2018 SSB which will be issued on 1st Feb 2018. As we can see, the 1st year interest is already at 1.55% and if we keep our money inside longer, the interest steps up as well.

Details and buying the SSB

Some details of the SSB are as follows:

• The 1st interest payment will be made on 1 Aug 2018, and subsequently every six months on 1 Feb and 1 Aug every year. 

• You can invest a minimum of $500, and in multiples of $500 up to $50,000 for this issue. The total amount of Savings Bonds held across all issues cannot be more than $100,000.

• Application starts from 2 Jan 18 and closes on 26 Jan 18 (9pm)

• Apply through DBS/POSB, OCBC and UOB ATMs and Internet Banking, OCBC Mobile Application from 7.00am - 9.00pm, Mon - Sat, excluding Public Holidays. On 2 Jan 2018, these channels will be open from 6.00pm to 9.00pm. CPF and SRS funds are not eligible.

How to redeem the SSB?

As mentioned earlier, there is a flexibility of redeeming the SSB every month just in cash you need the money. Similarly to buying the SSB, you can also redeem the SSB through the DBS/POSB, OCBC or UOB ATMs, or online through DBS/POSB’s Internet Banking portal. 

The redemption period opens at 6pm on the 1st business day of each month and closes at 9pm on the 4th last business day of the month. Redemption proceeds will be paid by the end of the 2nd business day of the following month.

Do note that the SSB pays interest every 6 months. If you redeem your bond when there is a scheduled interest payment, you will receive the scheduled interest together with your redemption amount. If you redeem before the scheduled interest is paid, you will receive a pro-rated amount, called the accrued interest, which is the interest you have earned but have not been paid. In essence, even if you redeem the bond early before the interest payment, you will still get pro-rated interest. 

I will be investing some of my money in the SSB for this month as the interest is quite attractive. Nowadays, the stock market valuation has been quite high and I will be looking to re-balance my portfolio to sell some of my stocks which are already overvalued. 

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2-3% Principal Guaranteed Investment

I know many of us have been trying to find places where we can put our money in-order to get better returns. At the same time, we don't want to take on too much risk and still get to grow our money. Good news! Just a few days ago, it was announced by the government and MAS that they are going to introduce something called the Singapore Savings Bonds programme to provide individual investors with a long-term savings option that offers safe returns. You might ask, how safe is safe? Are the returns high?


Details of the Singapore Savings Bonds Revealed

Bonds are normally considered safe investments especially when we talk about Singapore government bonds. They are almost risk free if you keep the bond all the way to maturity. You will get back the face value of the bond during maturity. In a way, as long as government bonds do not default (where the government goes bankrupt), we'll always somehow get our principle investment back.

However, the problem with normal government bonds is that it is still subjected to day to day price fluctuations. Yes, bond price can go up and down and if we sell it early, we could make a loss.

Now, this new savings bond is different from the normal government bonds which we often see. In my opinion, it is the safest investment which we can get while still earning decent returns. Here's why:

1. Principal Guaranteed

For this Singapore Savings Bonds, it is principle guaranteed. We can redeem the bond any time and we'll always get our investment amount back in full.

2. Monthly Issuance and flexible redemption

The bonds are issued monthly so we can buy the bonds monthly or redeem it monthly. It is so flexible that in case you really need the money, you can redeem it and still get back your capital without suffering any capital loss or penalty.

Best of all, any interest you get will be yours to keep.

3. Small investment amount

The minimum investment amount is $500 and thereafter in multiples of $500. There will be a maximum investment limit which will be announced later.

4. Step up Interest and term of 10 years

The interest rates paid are linked to the long term Singapore Government Securities (SGS) rates. Interest will be lower for the first year and will subsequently be higher for the next few years until year 10.

If we base on the prevailing SGS bond yield, on the first year, we should expect to get around 0.9%, on the second year around 1.5% and on the third year 2.4% and so forth. The actual rates will be given by MAS at a later date when the bonds are issued.

On average, you'll get around 2-3% (base on the current rate) if you hold the bond for 10 years. Interest rates can be lower or higher.


When will it be launched and How do I invest in it?

The Singapore Savings Bonds will likely be launched in the second half of 2015. MAS will provide more information on how to apply for the bonds at a later date.

I suppose applying for the bonds won't be that difficult. Probably we can do it through most of the major banks in Singapore or even apply it online.

In any case, this would be a good investment for those who want to get better returns for their money. It is principle guaranteed so there is practically no risks involved. I would definitely consider putting any of my spare cash into these bonds.

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Related Posts:
1. 4 things you should know before investing into bonds

4 things you should know before investing into bonds

I'm sure all of us have heard of bonds one way or another before. Either from the financial advisors who recommend you to buy a balanced bond fund or the bank personnel who told you that bonds are safe and give you a higher return than a savings deposit.

Before you invest into bonds, you must know the answers to these 4 questions:
1) What is a bond?
2) How does it work?
3) What are the types of bonds and their risk?
4) When is the right time for buying bonds?


What is a bond?
A bond is essentially a debt instrument. Government issue bonds so that they can borrow money from the public. The government is taking a loan from the bond investors. If you invest in that government bond, it means the government owes you money. You are lending money to the government.


How does a bond work?
Some terms that you must know before you invest in bonds.

1) Term to maturity/tenure: This is the number of years before the bond matures.

There are different term to maturity of bonds. They can come in 2 years, 5 years, 10 years 20 years etc. One important thing to know is bond price and yields move in the opposite direction. The yield here represents the market yield which is the current market interest rates. If market interest rates increase, bond prices decrease and vice versa.

Another thing to note is the longer the tenure of the bond, the more volatile it is to interest rates movement. Let me explain this further. Let’s say you buy a 2 year bond at $100 and market interest rate moves up by 1%, your bond price will go down to $90. However, if you buy a 20 year bond at $100 and market interest rate moves up by the same 1% also, your bond price will go down even lower to $70. This calculation is just an example and does not reflect the actual valuation of bonds. This volatility can be proven mathematically and is taught in finance courses in the university. Remember, the longer term the bond, the more volatile it is in response to interest rates.

2) Face Value: This is the money you will get back when the bond reaches maturity

Bonds face value can be priced at $100 and $1000. This is the exact amount you will receive when the bond matures regardless of what price you bought it at. If you bought the bond at $102, you will still receive $100 at maturity. If you bought the bond at $98, you will also receive $100 at maturity. If the current bond price is below the face value, it is selling at a discount. If it is above the face value, it is selling at a premium.

3) Coupons: This is the payment you will receive every year. Coupons are mostly paid semi-annually.

This is similar to dividends from stocks. Coupons are in percentages. They are fixed payments paid to bond holders. The coupon rate will be fixed throughout the bond tenure.


Types of bonds and their risk
We’ve discussed on government bonds which is one of the types of bonds. Another popular bond is corporate bonds. These are bonds issued by companies who want to raise capital. For example if Capitamall wants to build a new shopping centre, it can raise capital through issuing of bonds.

So what are the risk involved for bonds? There are many types of risk. The first one is default risk. This means the government or company which issued the bond goes bankrupt and cannot repay its loan. Therefore, when they default, bond holders will not be able to get back their money. Government bonds are known to be default free meaning that the likelihood of a government going bankrupt is non-existent. However, through the European crisis, we know that Greece almost went bankrupt along with other big countries. Countries defaulting on their debt may happen in the near future. For corporate bonds, there is certainly default risks. A company can go bankrupt any time so do take note of this risk when investing in corporate bonds.

Another risk is exchange rate risk. This applies when you invest in a bond denominated in a foreign currency. For example if you’re living in Singapore and invest in US government bonds, then you are subjected to exchange rate risk. If the US dollar goes down, the money you get back when you sell the bond will be considerably lower.

Finally, there is price risk. Bonds are traded in the market just like stocks. They can be bought and sold in the bond market. In Singapore, you can buy bonds from SGX itself. If you decide to sell the bond before maturity, you may lose money. The bond price may have already dropped in price. If the price has gone up, then it'll be good for you.


When is the right time for buying bonds?
This is an answer we all want to know. Is it a good time to buy bonds now? When should we invest in it? The right way to approach this question is by asking yourself how long are you going to hold the bond for? If you intend to hold it all the way till maturity, then you will get back the guaranteed face value. If not, you'll have to take into consideration the price movement of the bond.

As discussed earlier, bond prices will move down when interest rates rises. If you expect interest rates to rise now, then you should not be investing into bonds. News like the federal reserve will end the QE stimulus soon will cause bond prices to fall significantly due to interest rates rising. This is why i don't recommend investing into bonds at the current moment. Interest rates are at record low and the only way for it to go is up. There is limited downside left for interest rates. When that happens, bond prices will start to fall. This is also applicable if you buy a fund or unit trust that has bonds as one of it components. The fund price will be affected by the bond price.

Conclusion
We've discussed about the 4 things you should know before investing into bonds. I hope it has been beneficial for you and you will be able to make wise decisions on when is a good time to invest in it. With this knowledge, we can certainly avoid unnecessary loses due to our own ignorance. In this case, knowledge is power and ignorance is definitely not bliss.

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