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What to do with Singapore Savings Bond Return So Low?

Singapore Savings Bond (SSB) dropped yet again!

The 1y rate is 1.56% and the 10y average yield is 1.71% for the Nov2019 issue!

I bought some of the Sep2019 issue. This post is on your strategies and if Singapore Savings Bond still comes in useful to you.

One quick tip: buy just a few days before the closing. There's no benefit to buy too early also. Take note the closing date is always a few working days before end month (26th Nov 2019 for this issue).

Singapore Savings Bond (SSB) has NO potential capital gains unlike other bonds!

You'd buy the Singapore Savings Bond (SSB) from the SG government and it doesn't have any conditions attached for it's interest rates. It also doesn't have an active trading market for it.

If you are unfamiliar with the Singapore Savings Bond, refer to the video guide below with a W.A.G formula to understand it.

By the way, there are retail bonds trading on SGX. There are also wholesale bonds are traded over-the-counter (OTC) which is via a dealer network.

Both have likely seen some capital gains in the last few months.


Just to explain, bond prices rise when interest rates drop. If SSB is actively traded, this is how it works.

Let's use the January 2019 Singapore Savings Bonds. It gave 2.01% for interest on the first year and an average of 2.45%p.a interest for 10years.

In Nov2019, interest rates are much lower. If SSB were actively traded, that Jan 2019 issue could have a 6.75% capital gain. (if yield to maturity YTM is adjusted to around 1.71%p.a - same as the Nov2019 issue)

But SSB also has NO risk of losses!

Singapore Savings Bond is really more like a deposit.

When interest rates eventually rise, bonds in general will lose paper value.

All the retail bond and wholesale bond mentioned above are likely negatively affected.


But the SSB does not lose value regardless of the interest rate environment.

You'd redeem the SSB back from government at capital + accrued interest as mentioned in the video above!

Why SSB still works as a "war chest" for market downturns

I bought Singapore Savings Bond Sep2019 issue and rates were low then already.

Because SSB is a "deposit", I've decided to lock in just in case it fell further. Rates could unexpectedly stay low for many years ahead, who knows?

Jan2019 to Nov2019 SSB rates (blue for 1y and orange for 10y)

My purchase for the Sept2019 issue also does not have capital gains even though it was bought at a more favourable rate.

Scenario 1: Interest rates increase and equity markets still stay high

If interest rates for Nov2020 rise to become 2.01% again hypothetically, the simple strategy is to withdraw the month before and purchase the Nov2020 one. Continue on the "war chest" approach.

Be it $10,000 or $100,000, the extra transaction costs of $4 ($2x2) can still be worth it.

Amount invested
($)
Interest difference
(%)
Total difference in interest 
$10,0000.45% (2.01% less 1.56%)$45.00
$100,0000.45% (2.01% less 1.56%)$450.00

Scenario 2: Interest rates decrease/stay low, equity markets still stay high

Consider other short term low risk investments.

In this post are a summary of ideas 3y endowments which can give around 2.25%p.a fully guaranteed in this post.

Alternatively, explore high interest bank accounts. I personally use the OCBC 360 only which has salary crediting into it.

But High interest accounts are always prone to T&C changes. You could keep changing between accounts if you feel the hassle is worth it.


You could pivot your direction and explore putting some of your "investment war chest" long term retirement planning ideas.

Here's is an analysis of NTUC VIVOWEALTH SOLITAIRE , a retirement plan with guaranteed cash payouts.

Scenario 3: Equity markets crashed

That's what your investment into the SSB is for!

Simply withdraw online and plan out your equity strategy. You can decide on your withdrawal amount also subjected to the minimum redemption amount of $500 and in multiples of $500​.

It need not be the entire amount if you plan a dollar cost averaging strategy into equities.

Do note the transaction fee of $2 for each Savings Bond redemption request.


You will get your redemption amount back (along with any accrued interest) by the 2nd business day of the following month. (Illustrated below on SSB redemption timeline)

Conclusions and more strategies to take with low interest environment!

You'd really build your wealth ONLY with a market downturn and subsequent recovery.

So don't worry about chasing high interest bank accounts. The SSB is a place to park your war chest for future investments.

I've a further suggestion for you in current low interest environment and it is to refinance your mortgage. Take advantage of low interest rates now.

When Fed cut rates in 2008, many felt it was temporary in nature to boost economies. Fast forward 10 years, rates are still low.

POSB has a 5y 2% locked-in rate for HDB house and rates float from year6 onwards.

Banks are offering 1.86%p.a for 2years fixed rates now for completed private properties.

There's also term equity loan for a private property as a strategy to borrow more. I'd cover more in the video below...

Josh Tan Jian Liang (CHFC) Principal Author

REVIEWS: https://www.josh-tan/wall-of-reviews. Practising financial planner with Promiseland Independent Pte Ltd. EXPERIENCE: More than 12years. Josh Tan is a young parent, speaker, author and founder of TheAstuteParent.

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