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Singapore Savings Bonds vs Singapore Fixed Deposits

Singapore Savings Bonds vs Singapore Fixed Deposits
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Singapore Savings Bonds

The latest issue of Singapore Savings Bonds (SSBs) have average yields of 0.23% per annum for a 1 year holding period and 0.91% per annum for a 10 years holding period. The minimum investment is $500 with a maximum holding of $200,000 at any point of time. The holding period for SSBs can be up to 10 years with investors being able to redeem their bonds at any point in time without any penalty. The sum invested is guaranteed by the government with no risk of loss of capital. Investors can apply and invest in SSBs from 7 a.m. to 9 p.m. Monday to Saturday excluding Public Holidays at local banks ATMs or online banking using cash or SRS every month. Visit Singapore Savings Bonds website to get the most up-to-date information about the latest issue of Singapore Savings Bonds.

 

Average Yield for 10-Years SSBs for Past 12
Months

Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20
1.71% 1.76% 1.75% 1.71% 1.63% 1.39%
May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20
1.05% 0.80% 0.93% 0.88% 0.90% 0.91%

 

Future Direction of Yields for SSBs

Returns for SSBs matches the returns for Singapore Government Securities (SGSs) of the same holding period at the time the SSB is issued. The yields of SGSs have been kept low due to Singapore's strong fiscal position and strong credit rating in spite of a global recession. Hence, each newer issue of SSBs every month has seen lower yields to match the low yields in SGSs. Recent yields for SSBs have plummeted to record lows of 0.23% per annum for a 1 year holding period and 0.91% per annum for a 10 years holding period, levels that were previously unheard of. This downtrend in rates is set to continue and has decrease the appeal of SSBs considerably.

 

Singapore Fixed Time Deposits

Singapore Fixed Time Deposits offer depositors deposit rates of around 1.00% to 2.00% per annum for tenures of anywhere between 3 to 24 months since 2002. Minimum deposit varies widely but is usually around $20,000. Deposits in SRS accounts cannot be placed in fixed deposit accounts. Banks usually do not offer fixed deposits for tenures above 24 months and even if they do, the deposit rates are usually uncompetitive. Withdrawal of fixed deposits before the tenure is up will result in penalties such as depositors forgoing the interest, returning of promotional gifts or even paying a stated penalty. All deposits in Singapore including fixed deposits are insured by the Singapore Deposit Insurance Corporation for a sum of up to $75,000. Depositors can open a fixed deposit account anytime at any bank branches and even through online banking for certain banks.

 

Future Direction of Fixed Deposit Interest
Rates

Fixed Deposit interest rates have been dropping ever since the economic slowdown in 2019. The trend has accelerated in the past few months or so as the rapid spread of coronavirus grind worldwide economies to a halt and is most noticable in March and April 2020. Fixed deposit rates have peaked in mid 2019 and can only drop further in the forseeable future as countries try to pick up their broken economies by lowering interest rates or even resorting to quantitative easing to stimulate their economies. SGSs and SSBs yields have been a leading indicator for fixed deposit rates and with record low yields in recent months, we forsee more pain to come for fixed deposit rates and the slaughter could only subside when rates approach 0%.

 

Singapore Savings Bonds vs Fixed
Time Deposits

A quick look at Highest Fixed Deposit Interest Rates in Singapore will show that almost most banks offer higher fixed deposit rates as compared to the 0.23% per annum that SSBs yield if your holding period is 1 year. Comparatively, if your holding period is for the full 10 years, SSBs average yield of 0.91% per annum is comparable to some Singapore Fixed Time Deposits assuming you renew your fixed deposits at current interest rates everytime their tenure is up. The low return makes SSBs not as attractive to depositors looking for alternative financial products.

With a minimum purchase of $500 and a maximum holding of $200,000 worth of SSBs at any point of time, SSBs are quite restrictive for savers who want to park more than $200,000 in a safe investment. They are however ideal for Singaporeans who have less than $200,000 and are looking to growing their money instead of leaving them in their savings or SRS accounts.

SSBs are extremely liquid as they can be redeemed anytime and the capital will be back in the investor's account within a month without any penalty. Comparatively, depositors incur a penalty when they withdraw a fixed deposit before its tenure is up. Both SSBs and fixed deposits are extremely safe with loss of capital extremely unlikely even in the event of a financial crisis.

 

Hold off Buying Singapore Savings
Bonds and Place Funds in Fixed Deposits

Singapore Savings Bonds can cover the needs of most Singaporeans who want to save for the long run and it makes sense to invest in it as an alternative product to short term fixed deposits that banks can offer currently. Investors/savers will get more certainty of the interest rates over the course of 10 years if they purchase SSBs as compared to fixed deposit interest rates which fluctuate with market conditions. SSBs provide a competitive product to fixed deposits with higher returns for depositors in the long term and is a free gift from the goverment.

The yields of SSBs are now lower than Singapore Fixed Time Deposits after SSB yields plummeted in  recent months. Both rates could drop further and it is a race to the bottom. There will definitely be more pain to come and depositors should hold off buying SSBs as they have lower yields compared to Singapore Fixed Time Deposits. With both deposits and SSBs having record low returns, it is a good idea to place funds in longer term fixed deposits for higher rates or conserve cash and wait for better investment opportunities.

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