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

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:

Amount of cash in an asset allocation
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