It’s been a while since the last post. Have been busy with work, went on a holiday and reformatted my computer. Setting up everything again after the reformatting is/was quite tedious and I procrastinated. But here we are again.

I’ll be combining the Jan and Feb editions of the SSB in this post.

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 $200K of SSB, and no more than $50K 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.

Feb 2019 Singapore Savings Bond

Year from Issue12345678910
Interest (%)1.981.981.982.092.162.212.302.382.462.53
Average Compounded Return per year (%)1.981.981.982.012.042.062.102.132.162.20

Note that the yield curve is flattening, i.e short term and long term interest rates are converging.

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. 

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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. Let’s compare 2 bonds with a holding period of 4 months (Feb 2019 to May 2019).

If you own $1000 worth of the Jul 2018 issue of SSB and redeem it on May 2019, you would gain a total of $5.73 of interest for holding it from Feb 2019 to May 2019. You can find this value by finding “2-Jul-18” on the left and “May-19” on the top. 

Now you can compare this value to the current issuance (Feb 19). If you hold $1000 of the Feb issuance from Feb 2019 to May 2019, you would gain $6.60 of interest. You can find this value by finding “1-Feb-19” on the left and “May-19” on the top.

This means that if you plan to hold your SSB until May 2019, you would gain $6.60 – $5.73 = $0.87 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 / $0.87 = $4597.70 (round it up to $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.

Thoughts

This month’s bond has pretty good short term interest rates (1 year +), but poor long term interest rates.

As usual, we should not roll over the older bonds (Roughly Oct 15 – May 16). This is intuitive because once the bond is a few years old, the interest has stepped up considerably. 

Last month’s bond was one of the ‘good’ bonds, and is better than this month’s bond for every period.

Thanks for reading!


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Categorised in: Investing, SSB

5 thoughts on “Singapore Savings Bond Comparison: Jan and Feb 2019

  • Ben says:

    Question from /u/firepathlion on reddit:
    Hey Ben, great post! I haven’t really looked into the SSB yet as the returns are pretty low (barely above inflation) but I just want to know how you’re utilising it in your asset allocation? How many % of your portfolio would you say you have in SSB?

    • Ben says:

      Hey FPL, I am not using SSB in my portfolio, but in my emergency fund. The point of SSB is that it is virtually risk free, and it provides decent returns for the level of risk.

      We should evaluate the strengths and weaknesses of the various financial products available use them according to our own needs. Personally, SSB suits me very well in my emergency fund because it is safe. However, it is not very liquid, so I mange that by parking about half my EF in SSB and the rest in a high-yield savings account.

      • Thank you for the answer Ben! That makes sense. Since I’m new to the concept of SSB, when you say that it’s not as liquid, how do you liquidate the SSB?

        As for the EF, I know the conventional wisdom is that we should have 3-6 months of our monthly expenses in EF, but there’s another school of thought of keeping all your funds in stocks (to capitalise on the higher returns) while using lines of credit, loans, and finally your portfolio as the EF. I think “Early Retirement Now’s” post https://earlyretirementnow.com/2016/05/05/emergency-fund/ goes into the details quite well. Of course it also really depends on your portfolio value, but it frees up the cash that would otherwise be “locked up” in an emergency fund to be invested and grown. What’s your thought on that approach to EF?

      • Ben says:

        You can check out the official SSB’s redemption policy here. Basically, whenever you redeem your SSB, the proceeds will be credited to your account latest by the 2nd business day of the next month. This means you will be able to access your funds anywhere between 3 – 30 days later depending on the day you redeem your bond.

        I’ve previously written a post on the opportunity cost of emergency funds here. A few factors come into play here. Firstly, my expenses are low, so 3-6 months expenses is not a large sum. Secondly, the size of my EF compared to portfolio is small, and its proportion will grow even smaller over time. This means that the opportunity cost as a percentage of my portfolio will decrease over time. Lastly, I have quite a few (>5) bank accounts so that it is easier to account for my money (I know money is fungible but I am a mere human and this is easier for me). Since we have to put some money in all these accounts to meet the minimum balance requirements anyway, I count all these minimum balances towards my EF. Thus, the extra money I have to top up is not much.

        I think of the opportunity cost as paying an ‘insurance premium’ to have a peace of mind. Since the extra money I have to put in is low, and the returns are decent, why not? That being said, this is what currently works for me. The situation may change in the future (eg travel the world after FIRE, etc), and I may close my accounts and dump my EF into my portfolio.

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