What Are Bonds
Bonds are one of the methods for corporations and governments to raise funds. It is a form of borrowing whereby we lend money to the government or corporations and we earn interest on it. We are able to redeem the principal amount but normally there is a penalty for early redemption.
Even with bonds, there is a default risk whereby you might lose all your money. There is also an inflation risk whereby the inflation is higher than the interest rate.
Some bonds are also tradable, for example, the ocbc bonds. If a bond gives you a higher interest rate, there might be higher risk because when a company cannot get loans from the bank, they will issue bonds. When their earnings cannot sustain the bond repayments, the bonds might default.
What Are Singapore Savings Bonds (SSB)
There is an almost risk-free investment in bonds out there and It is an introduction by the Singapore government called Singapore Savings bond (SSB) launched in October 2015. It is capital protected, good for long term and flexible because you can withdraw it at any time. Yes, that is right you can withdraw your investment at any time without incurring a penalty, unlike company bonds.
Criteria To Invest In SSB
The catch is that you must be at least 18 years old, minimum investment amount is cash of $500 up to a maximum of $100,000 with a maximum of $50,000 per application.
The term is a 10 year period, but you can redeem in any given month with no penalty. You must own an ATM card with Singapore banks such as DBS/POSB, OCBC and UOB. You can apply for it via the ATM machine or I-banking. Application opens the first business day of each month and closes four business days before the end of each month.
The fee is $2 per transaction.
They will release the news 3 business days before the end of each month on whether you are allotted the SSB. The SSB will be issued on the first day of the following month and remember, It is non-tradable.
Interest Rate of SSB
It offers a step up interest rate which means that the interest rate will increase year after year. For example you might get 0.9% in the first year, 1.5% in the second year but if you invest for 10 years, it is about 2.4% per annum.
You will receive the interest every six months. If you subscribe in October, you will receive it every April and October.
SSB Is Good If You Would Like To:
- Diversify your portfolio
- Looking for some place to park your money while waiting for a good opportunity to invest
- Park your emergency fund
For example, Warren Buffet does not like bonds generally. However, if needed to, he favors shorter duration bonds that are due in a year or less, which is the characteristics of SSB.
As compared to Singapore Government securities and most fixed deposit in most banks in Singapore, SSB is principal guaranteed, has no redemption penalty and has a higher interest rate.
I hope this short article gives you another alternative to parking your money while waiting for the opportunity to invest besides putting it in a fixed deposit in banks.
Feel free to see the official SSB website by clicking here.
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