This is a monthly series where I do a comparison of the current issue of the Singapore Savings Bond (SSB) against the past SSB issuances over the last ten years. If you have read this before, skip to the Yield Curve, Table and Thoughts sections. I’ve included an asterisk (*) at the end of the title to make them easier to find.
MAS has been issuing the SSB every month for over three years now, and many Singaporeans will have heard of it before. They have even started advertising at bus stops and MRT stations. Here are the key benefits:
- (Virtually) Risk Free: Backed by Singapore Government with AAA credit rating
- (Almost) No Fees: There’s only a $2 fee when buying or selling
- Capital Guaranteed: You will not lose your capital (except the $2 fee)
- Relatively Liquid: Whenever you redeem (sell) your bonds, the money will be credited to your account on the first business day of next month
- Low Capital Requirements: Minimum investment of $500
As always, there are some drawbacks:
- Holding Limits: Each individual can only own a total of $200K of SSB, and no more than $100K for each bond.
- Subscription Limits: There is a subscription limit for each bond. If it is oversubscribed (too many people buying), you may not get the full amount that you want.
- Low Returns: As this is a safe bond, it provides low returns
One of the unique things about it is the step up interest, where the interest given increases every year you hold onto it. Since the interest on the bonds vary every month, you can ‘roll over’ your previous subscriptions. This means redeeming a previous bond issuance and buying the current issuance. This means that you get higher interest on your money for free!
You can even roll over your bonds even if you have hit the 200K limit.
Again, there are some caveats:
- Excess Cash: Since the redemption proceeds are only credited next month, you need to have enough money lying around to buy the bond
- Over-subscription Risk: If the bond is popular, you might not get all the amount you want. Popular bonds are usually the ones with higher interest too
Personally, I keep some of my emergency funds in SSB to hedge against inflation and have rolled over it once. Since the amount was relatively small, I was able to get the full amount.
Apr 2019 Singapore Savings Bond
The yield curves show that this month’s bond offers a higher short term returns but lower long term returns. This will be reflected in the numbers later on.
Apr 19 yield curve is flatter than Mar 19. Before jumping to conclusions, we should remember that no one can predict the future. Personally, I’m not selling any of my stocks just because the yield curve is flatter.
The main idea behind the comparison is to see how much you would get for holding each issuance of SSB starting from next month. This is calculated for every month until the bond matures. We can then compare this to the new SSB that is offered to see if rolling over gives you more money.
Before we start, there is one assumption that I made during the analysis. The interest gained is not reinvested. This means that the value of later payments are over stated due to the time value of money/inflation. I’ve made this assumption because it is impossible to reinvest the money in the same edition of the bond.
Interest is paid every 6 months, and redeeming a bond early will give you a pro-rated interest on a per month basis.
Here’s a link to the actual spreadsheet.
Here’s how to read the table. The first column (Column A) is a list of all the bonds issued so far, and the date is the issue date of the bond. The first row (Row 1) shows every month from now on.
The values show the cumulative interest gained per $1000 invested if you redeem on that month. The calculation starts from next month onward, and previous interest payments are not included in this value (every bond starts at $0 from today).
The second row is this month’s SSB issuance, and is the baseline for comparison. Let’s compare 2 bonds with a holding period of 4 months (Apr 2019 to Jul 2019).
If you own $1000 worth of the Sep 2018 issue of SSB and redeem it in Jul 2019, you would gain a total of $5.83 of interest for holding it from Apr 2019 to Jul 2019. You can find this value by finding “3-Sep-18” on the left and “Jul-19” on the top.
Now you can compare this value to the current issuance (Apr 19). If you hold $1000 of the Apr issuance from Apr 2019 to Jul 2019, you would gain $6.53 of interest. You can find this value by finding “1-Apr-19” on the left and “Jul-19” on the top.
This means that if you plan to hold your SSB until Jul 2019, you would gain $6.53 – $5.83 = $0.70 more interest if you ‘roll over’ your bond. However, note that there is a $4 fee for rolling over ($2 for buying and $2 for selling). So, you would only gain if you roll over more than $1000 * $4 / $0.70 = $5714.29 (round it up to $6000) worth of bonds.
The table is colour coded. Green means that you gain more interest for rolling over. Red means that you lose interest for rolling over. White means the interest is the same.
As mentioned previously, short term interest rates are higher, but long term interest rates are lower. The turning point compared to Mar 19 is Feb/Mar 2023. This means that this month’s bond is better than last month’s if you plan to hold for roughly four years or less, but remember about the transaction fee.
Recent issues of the SSB has provided pretty decent short term interest rates (close to 2%), which beats a lot of the short term fixed deposits from the banks. SSB is also more flexible. The only benefit of fixed deposits is as collateral for secured credit cards.
The trend of this month’s bond being strictly worse than last month’s bond has been broken. Apr 19’s short term interest rates are better than Mar 19’s. However, the long term interest rates are still trending down.
Thanks for reading!