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.
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 $100K of SSB, and no more than $50K for each bond (Update: It has been increased to $200K total holdings from 1 Feb 2019)
- 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 100K limit. (Update: It is now $200K from 1 Feb 2019)
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.
Dec 2018 Singapore Savings Bond
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.
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 from $0).
The second row is this month’s SSB issuance, and is the baseline for comparison.
If you own $1000 worth of the May 2018 issue of SSB and redeem it on Mar 2019, you would gain a total of $5.50 of interest for holding it from Dec 2018 to Mar 2019. You can find this value by finding “2-May-18” on the left and “Mar-19” on the top.
Now you can compare this value to the current issuance (Dec 18). If you hold $1000 of the Dec issuance from Dec 2018 – Mar 2019, you would gain $6.30 of interest. You can find this value by finding “3-Dec-18” on the left and “Mar-19” on the top.
This means that if you plan to hold your SSB until March 2019, you would gain $6.30 – $5.50 = $0.80 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 / $0.80 = $5000 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.
Scrolling through the table, we can see that we should not roll over the older bonds. This is intuitive because once the bond is a few years old, the interest has stepped up considerably.
There are also some ‘good’ bonds which provide a higher interest in the past, which are Feb 2017, Jul 2018 and Aug 2018. Those bonds are better if you plan to hold onto SSB for the next few years. I am currently holding the Jul 2018 issue, and will not be rolling over for this month.
Thanks for reading!