11 May 2015

Singapore Savings Bond - As safe as it can be [updated]

Plenty has been said about the Singapore Savings Bond (SSB), so enough said on the general idea. We will have to wait till the second half of the year however to understand better how do we, as lay peons, go about investing into it, and if there are limits for each investor. Is this yet another Singapore-only innovation?

Interestingly, it was in fact announced during the week of the most momentous event in Singapore's history. But it probably went low key because of it. The blogging community largely also respectfully abstained from publishing during that week.

It looks like this is a manifestation of the idea previously mooted about an inflation-linked bond. Though not quite the same, it does offer semblances of it. With its pegging against the prevailing Singapore Government Securities (SGS) Bond, the current rates range from the low end of 1% to 3%. These rates would of course vary over time depending on how SGS Bonds fair. The prevailing sentiments is that bond rates are likely to go up over time as interest rates rise.

[This is not to be confused with bond "yield" which has an inverse relationship.]

While it doesn't yet hit the above 4% that I was looking for, nor was it the mechanics that I thought would materialise, still, it's a positive move forward. There is hope.

From casual chats with relatives and friends, many still do not understand. Some think it's a one-off affair, like the sale of the special series of Singtel shares when it was first publicly listed. Others, who belong to the the-government-is-out-to-con-me-no-matter-what-they-do camp viewed it as yet another scam that will take away their money. One simply asked, which bank is this?

Personally, I have yet to understand how SSB works from the government point of view. How is it self-sustainable and implemented to support the system? I would vaguely guess that it rides on the underlying SGS Bond as an implementation.

What can I use such a scheme for? Some personal views:

  • The 6-month salary worth of cash reserves to deal with unexpected emergencies, assuming liquidation is straightforward and fast enough.
  • Part of the 10% component of my investment portfolio that I want to keep - i.e. with a lower risk profile.
  • Kids education fund as it runs into the final 5-10 years, depending on how risk adverse I am.
  • A safe fund being built-up for some mid-term but uncertain intentions (e.g. buy house, car, etc), for which plans may not unfold over a 5-10 year horizon.
Some of my relatives are so risk adverse, they will never ever ever want to invest in shares and such. For them, the SSB is definitely a better solution than leaving their cash collecting flakes of particles (otherwise known as "dust") in a bank savings account and in fixed deposits.

By the way, a Central Depository (CDP) account is needed. Do you have one yet?

On a separate note, SGS Bonds (not to be confused with SSB!) can also be bought directly by retail investors through the local banks, but require $250,000 at par ($1 per unit). Alternatively, they can also be bought off the secondary markets via Fundsupermart or from the Singapore Stock Exchange in lots of 1000 units at the traded price.

p/s: We really love our Three Letter Abbreviations (TLA).


B said...

Hi Lizardo

Just wondering if you are considering take up for this SSB or any corporate bonds?

Lizardo said...


SSB maybe, as it is an alternate source of keeping ready cash with better returns. I would view that as part of my cash reserves for emergency.

Corporate bonds sure, but only if the rates are at or above 4%. For that kind of rate, I'd be glad to hold forever.