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Singapore Savings Bond vs Fixed Deposit - SSB

Singapore Savings Bond Interest Rate vs Fixed Deposit

I have always been of the opinion that Singapore Savings Bond interest rate are a better alternative to Fixed Deposits. Many people utilize fixed deposits as a very safe way to earn a small return on the excess cash that they have in the bank. Fixed deposits is after all a instruments that guarantees your capital and returns if you commit to the full length of the deposit.

Let’s take a look at the Fixed Deposit rates provided by the different banks in Singapore right now.

With information from moneysmart, we can see that Fixed Deposit rates among different banks and financial institutions vary from 1.4% to 1.9% per annum.

Singapore Savings Bond vs Fixed Deposit - SSB Interest Rate

In comparison, the interest rate for December’s Saving Bond starts from 1.89% for 1 year up to 3.04% for the 10th year, giving an average of 2.57% return per year.

Singapore Savings Bonds can be subscribed by investors via the 3 local banks at multiples of $500 with a maximum investment of $100,000. Interest are paid every 6 months

Here is my list of pros and cons of the Singapore Saving Bonds as compared to fixed deposits.

Singapore Saving Bond Interest Rate Pros

  1. The bond is backed by an AAA rated Singapore government. The probability that this AAA rated government default on the bond is very low.
  2. Interest rates are generally higher than fixed deposits.
  3. Investors can hold onto the bond for short period of time. Unlike fixed deposits, bondholders can terminate prematurely and still receive interest. Albeit, a pro-rated amount.
  4. Therefore, investors can decide the time period where they want to hold onto the bond.

Singapore Saving Bond Interest Rate Cons

  1. Redemption takes places once a month. Therefore, if you need cash the next day, you will find that it is faster to cash out fixed deposits.
  2. This bond cannot be traded on any secondary exchange, which deprives bond traders from making any profit from bond price movements.
  3. On average, the 10 year return for Singapore Savings Bonds does not beat inflation, therefore, investing for the long term using Singapore Savings Bonds does not sound enticing.

We can see that essentially, Singapore Savings Bonds works like fixed deposit. Person A brings out excess cash and commits it to an entity (the Singapore Government) for a period of time and receives interest.

The difference is that the Singapore Savings Bonds has a backing larger than any banks and interest is guaranteed.

Unlike other government bonds who provides really low interest (except Temasek bonds which is already over-subscribed, so no chance of buying it anymore), Singapore Savings Bonds can be a good substitute for fixed deposits.

With the introduction of the Singapore Savings Bonds, if I have excess cash that I would like to put aside for a year, monies that I do not want to risk in the equity markets, Singapore Savings Bonds is where I go to. It provides me with higher interest, stability, safety and liquidity.

However, for the long term, the returns are too mediocre. For the long term, equities makes much more sense than bonds. Some bondholders will disagree, locking themselves into high yield bonds and junk bonds that provide them with “steady” returns over the years. However, that is another topic for another day; bond investment is not safer than stocks. Bonds are equally safe as compared to stocks and both bonds and stocks are only as safe as the issuer.

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