The recent details on the product released by MAS gave all of us a much better idea on the issuance, application and the limits on the investments one can buy.
However, here’s a short summary of the SSB for those who are still wondering what’s going on:
Term: Max 10 Years
Issuance: Monthly Starting 1st September 2015 (Till at least 2020)
Yield to Maturity: 2 – 3% (Matching the returns of a 10-Year SGS)
Investment Amount: Min $500 (in $500 multiples). Max $50,000 per issuance. Max $100,00 per investor.
Key Features: No Price Risk, No Penalty On Early Redemption
Click here for the Singapore Savings Bond Factsheet
I’ll like to now offer some views from a more practical perspective.
1. Potential Timeline To Max Out On SSB
About $2 to $4 billion will be issued this year for the 4 remaining months. Let’s assume $1 billion SSB to be issued monthly. And if we have 500,000 people applying for the SSB, the each individual investor would only get $2,000 worth of SSB. Which means that it will take someone 50 months, or 4.17 years to max out on the cap per investor. That’s a lot of effort… 😰😰😰
2. Maximum Gain From SSB
Let’s assume Mr Lucky managed to max out his SSB investments in just 2 month. If we assume a 2.5% YTM, then his $100,000 will become ~$125,000 in 10 years time. If we work backwards, the Annual Compounding Returns will then be ~2.26% p.a. That’s lower than CPF OA interest rate, but still better than FD.
3. Increase in FD Interest Rates
Following the release of SSB, banks now need to compete a little harder for its original share of the pie. A quick search on the Internet yields FD rates offering 1.5% to even 1.8%. Of course T&C applies. But good news for FD investors 🙂
4. Best Use Of SSB
I feel, like FD, SSB would be best used to be set aside for Emergency Fund. Ideally, that should be 6 to 12 months of income or expenses. Hence the cap of $100,00 fits the bill to a tee.
5. What Could You Do Next?
Assuming all investors are looking for the maximum gain from SSB, I.e. willing to hold them till maturity for 10 years. Then there are definitely many other options which someone can seek better growth potential. Let’s assume further that $100,000 is really in excess (after having set aside your Emergency Funds), then a 10 year period is really quite a good medium term to do some good planning. However, let’s not sway too much into something uncertain. I’ll just assume the case of making use of CPF Special Account, which gives a 4% interest at this moment. Since you are not planning to use the money anyway, then having a long term opinion could then be a better idea? If you transfer $100,000 into your Special Account today, the estimated compounding returns after 10 years will then be ~$148,024. Food for thoughts.
Of course the sacrifice for this guaranteed returns is the liquidity of your funds. Like I mention, there are definitely other instruments which could do that for you too, with a certain amount of risk/returns.
© Wee Khai
Wee Khai is an avid soccer player, who completed 12 half-marathons and 3 full marathons in his entire life.
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