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More details of the Singapore Savings Bond. Looks like my Emergency Fund now

March 31, 2015 by Kyith 45 Comments

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We waited for more details of the Singapore Savings Bond, a bond the Singapore Government came up with to help Singaporean’s save and turns out the factsheet is out. You may want to find my first view of it here.

The most important info is how the interest is structured:

And my hypothesis was correct, that somehow the Singapore Savings Bond manages a basket of SGS Bonds of different duration. If you withdraw 3 years into it, you get the yield equal to the duration of a 3 year SGS Bond.

If you proceed to the fourth year,  your yield is HIGHER than that of a 4 year SGS Bond to make up for the yield you missed out for the first 3 years.

I like this bond for the following characteristics:

  1. Government Backed as compared to other investment assets
  2. Liquid, you can pull out rather fast, AND you don’t suffer lost of capital as that versus a typical Singapore Government Securities Bond (SGS)
  3. The 10 year returns depend on the prevailing interest rates, but likely fluctuate around 2%. If you compare to my article on past insurance saving endowments spanning 5- 20 years you will see the returns are less than the typical 2.5% for insurance endowments (read my work on some past case studies here). BUT you don’t get penalize to withdraw your money earlier.

There is one aspect of your wealth plan that you do not know when you will need the money: Your emergency fund. You do not know when you will need the money, but if you don’t need it, its painful to leave it in a typical fixed deposit.

It matches up to the strength of this thing well, though i still think you cannot get your money within 3 days if required (we used to have money market unit trust for that)

The thing not reveal now is what is the maximum cap to this thing. If too much there will be a sizable flee from fixed deposits.

Things I have not process in my head:

  1. Can the guidance for the 10 year yield be the yield of a fresh 10 year SGS issued in the year you purchase the bond?

The current SGS Bonds Yield to Maturity for Various duration taken from Fundsupermart is below (note market SGS Bond prices and yield to maturity fluctuate based on market forces, interest rates):

Factsheet Singapore Savings Bonds

How does the Singapore Savings Bond compared against fixed deposit, who i think will have a problem ( I believe this is the reason why the maximum amount of Savings Bonds available to purchase is not announced yet) . Business Times have a great infographic:

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Filed Under: Personal Finance

About Kyith

Founder & Sole Employee of InvestmentMoats.com . Senior Solutions Specialist at Fee-Only Advisory Firm Providend by day. Blogger by night. Active Stock Investor for 15 years. SG & HK Mkts. Pursues Financial Security & Financial Independence. Reached Financial Independence at 38. Facebook , Twitter. More on Kyith ...

Comments

  1. Ian says

    March 31, 2015 at 9:36 am

    Hi Kyith,
    This looks like a good investment option – quite straight forward. I could foresee that the general public will like this.
    Two thoughts:
    1. With this, I do not see a need to have SGS – no liquidity at all. Who will buy that?
    2. It’ll be interesting how banks react to this bond – offering more attractive fixed deposit scheme?

    Reply
    • Kyith says

      March 31, 2015 at 11:33 am

      Hi Ian,

      The underlying is still sgs bonds so the demand is indirect. There should be a cap but the banks will need to raise deposit rates to compete.

      Reply
  2. Siew Dai says

    March 31, 2015 at 10:54 am

    Hi Kyith, this is a much needed investment option for retail investors. One question: specifically, who is the issuing entity, that is, which entity will be called upon to repay the bond if an investor wants to redeem his bond?

    Reply
    • Kyith says

      March 31, 2015 at 11:38 am

      Hi Siew dai,

      Currently I have no idea on that unfortunately. The slip shot answer is the government but I doubt u are satisfied with my answer there.

      Think of it as a government fund manager managing a basket of different duration of sgs bonds. Usually we need to pay a management fee so what about this. Question just pop up in my head.

      Reply
  3. Turtle Investor says

    March 31, 2015 at 2:02 pm

    Eagerly awaiting the individual cap as it will affect how large a portfolio that the Singapore Savings Bond can cater to. At the very least, would still be great for emergency funds and idle money for the good liquidity.

    Reply
    • Kyith says

      March 31, 2015 at 2:35 pm

      Next thing they tell us only allow 15k. If they failed to determine now, you know its not an easy decision

      Reply
  4. Mickey J says

    March 31, 2015 at 2:07 pm

    I think this is a good complement to SGS bonds. If one has the investment horizon of 10 years and am confident that there won’t be a need for that money, investing in a 10-year SGS bond instead of SSB will yield a much higher interest rate. On the flip side, if one needs to have liquidity and wants a higher interest rate than fixed deposit, then SSB works perfectly.

    The question now is, why would I choose to put money in SSB when OCBC360 still gives me a 2.05% interest rate per year (I only fulfill 2 out of 3 requirements)?

    Reply
    • Kyith says

      March 31, 2015 at 2:36 pm

      Hi mickey, I think not a lot know about sgs bonds at all. Thus this.

      But even that I heard the sgs bonds have a fee to it

      Reply
      • lzw says

        March 31, 2015 at 8:21 pm

        OCBC360 has a cap of $50,000.

        Reply
        • Kyith says

          March 31, 2015 at 8:38 pm

          Hi LZW, true, but there are various caps on attractive things. i have friends that say , why do we need something like this since we have OCBC 360. That is a bit myopic because u always want to build up evaluation skills, and more so for money.

          my friend went to open a 360 account and what i understand is that they will be reducing the interst by 0.5% (don’t shoot me if i get this wrong)

          Reply
  5. E U says

    March 31, 2015 at 6:25 pm

    I am guessing a cap of $50,000.

    Reply
    • Kyith says

      March 31, 2015 at 7:00 pm

      Hi E U,

      Good guess. That is quite a fair bit for us to work with.

      Reply
  6. justin says

    March 31, 2015 at 8:34 pm

    This is a great initiative by the government. One can only wish that the limit will be six digits at least but just like E U said, i am guessing that it is capped at 50k.

    Once this is in motion, I do not see any reason for people to buy endowment plans anymore. It just simply doesnt make sense. Freedom to cash out your money anytime is sometimes priceless.

    Reply
    • Kyith says

      March 31, 2015 at 8:42 pm

      Justin you seem a good thinker, so something just entered my head. if the 10 year bond yield is locked in at 2.2% if you buy in today (hypothetically). if the rates rise to 2.5% next year, technically shouldn’t u sell at zero cost, to buy the higher yielding one? (=))

      Reply
      • justin says

        March 31, 2015 at 11:37 pm

        I think if you sell and buy the higher yielding one, you forfeit the time you have accumulated and going forward you will receive less yield than if you held it right from the start? I’m not sure how its going to work, but surely it cant be the case where people keep chasing the higher rates every month. we shall see what MAS announces going forward.. hahaha

        Reply
        • Kyith says

          April 1, 2015 at 7:49 am

          theoretically you wont be forgoing much since you received the coupon every 6 months. if next year comes along, it gives you the coupon amount u didn’t get (as the previous years the coupon is smaller as they are aligned with a lower yielding SGS bond)

          so theoractially i think they won’t miss out much.

          the interest have to be fixed because, 10 year duration bonds can get fluctuating because if you think about it, perhaps 10 years later the 10 year sgs bond yield ends up similar to current 1 year SGS bond yield

          Reply
        • Kyith says

          April 1, 2015 at 7:51 am

          btw Justin, are you into Trial Biking?

          Reply
          • justin says

            April 1, 2015 at 9:13 am

            Nope, used to ride road bike but no longer do so… You?

          • Kyith says

            April 1, 2015 at 10:09 am

            Hi Justin, I don’t bike but I was curious of your email address and I went take a look and realize it does trial bikes, a bit nostalgic consider one of my sec school friend was mad over it. Thus the question hope you don’t mind.

          • justin says

            April 1, 2015 at 10:13 am

            Haha no worries, cycling is good .. In a meeting now, will reply to your other post later

  7. Matthias Kauer says

    April 1, 2015 at 1:08 pm

    It seems these dominate SGS in every way. Makes me somewhat icky b/c they look too good to be true.

    Reply
    • Kyith says

      April 1, 2015 at 1:11 pm

      Hey Matthias , yes but primarily it provides liquidity to the holder. Hard to find such a product. Perhaps they will cap at 15k haha!

      Reply
      • Matthias Kauer says

        April 1, 2015 at 2:34 pm

        Hi Kyith,
        thanks for replying and kudos again for putting out good information as well.

        The liquidity is exactly what makes them more attractive. It just seems that I’m getting that liquidity for free which makes me worry that we’re missing a piece of the puzzle.
        Have you heard anything about whether this is for citizens/PRs only?

        Cheers,
        Matthias

        Reply
        • Kyith says

          April 1, 2015 at 5:51 pm

          Hi Matthias , let me see if I have info on that. I only know its not for institution. But perhaps they will say only PR and citizens only.

          Reply
        • Kyith says

          April 1, 2015 at 5:54 pm

          Matthias, the info graphic from business times ( I updated the article ) shows it is for individuals, so perhaps expats are allowed as well.

          Reply
  8. Tiong Hum Soh says

    April 1, 2015 at 2:16 pm

    Some questions come to mind:
    1. Does this qualify as borrowing from/selling sophisticated financial products to non-accredited investors?
    2. Will lenders/buyers of these bonds be required to pass ‘KYC’ criteria?

    Reply
    • Kyith says

      April 1, 2015 at 2:26 pm

      Hi Tiong hum, interesting to explore tat. Folks would need to take the test. But really if its down to this, it will be another layer in the everyday man complications

      Reply
      • Tiong Hum Soh says

        April 1, 2015 at 3:18 pm

        Hey Kyith, you think so? It would be fascinating to see which G department is given charge of dealing with the ‘selling’ and KYC. I think it makes more sense for banks to become agents but that means sales charge and lesser returns.

        My mom, a 60+ y.o. stay-at-home housemaker, is aware of this product. She does not speak English, has no income. Yet through FM958 and Lianhe Zaobao, she is now aware and (maybe) excited about the savings bonds. I love to see how the Savings Bond is going to reach her demographic segment or turn her away.

        Reply
        • Kyith says

          April 1, 2015 at 5:56 pm

          Hi Tiong hum, better not. Let a single department do this to minimize cost. This is basically running it as a fund manager, the question is what is the sales charge involved

          Reply
          • Tiong Hum Soh says

            April 1, 2015 at 7:06 pm

            Good idea. I hope they keep it simple, cheap, max protection, max returns. Lol.

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