ARE SINGAPORE SAVINGS BONDS AS GOOD AS THEY SAY THEY ARE?
The Singapore Savings Bonds, also referred to as SSB, are cycles of people giving away their money to be safely kept by the government. The money kept away usually yields returns, much like the bank savings accounts. People prefer having their money held by the government mainly because it is the most trusted caretaker, meaning there are almost zero risks. However, some people are discovering other means of saving their money, other than the SSB. For instance, many go for deposit or high-interest accounts. What this means is that the SSB is not as good as it used to be. This paper discusses how the public has received the Singapore Savings Bonds since its inception in 2015.
Contents
The Basics
Many people are buying bonds with the Singaporean government, mainly due to the virtual lack of risk. The interest rates are rising ever since this investment was launched in 2015. This means that high returns are guaranteed after every 6 months on the bonds purchased. Moreover, SSBs are a much safer way of keeping money in comparison with bank savings accounts. Why? Simple! While also a right way of saving money, banks have a high risk of shutting down. SSBs offer an option of saving money for a period of one’s choice, unlike the banks. People choose how long they want to invest with SSBs, and the longer the period, the higher the returns. Additionally, when it comes to liquidating the money from the SSBs, there are no penalties incurred. Among a few others, these are the reasons people prefer investing in SSBs, either to grow their income or just having money safely kept away for several years. However, some factors make this investment plan unsuitable to other people.
Need for Alternatives
Singapore Savings Bonds interest rates have currently dwindled, compared to when the investment was launched. Initially, the interest rates would rise to nearly 2.2% p.a, even for shorter periods. In many cases, for those that saved for about 10 years, the rates could rise to almost 3% p.a. That was back then. However, the current interest rates have significantly declined, peaking at about 1.76% p.a, even for investments that run for 10 years. As a result, SSBs are currently being compared to fixed deposit accounts because the interest rates are almost equal. Money Singaporean banks are improving the interest rates of fixed deposit accounts, which now stand at 1.85% p.a. Moreover, it is easy to find banks that offer 2% p.a interest rates on savings accounts, with low or virtually no risks! Another possible alternative to SSBs is the dividend stocks, with guarantee higher returns. Similarly, the CPFs investments have much higher interest rates on one’s capital, as high as 4% when one opts to run a Special Account. These are a few of the many alternatives that prove worthy of someone’s investment capital and guarantee returns that are equal or even higher than the SSBs.
Capital Gains, Interest Rates and Returns
Another interesting point to note is that with Singapore Savings Bonds, there no guarantee of eventual capital gains. What does this mean? To investors, it means that even when the interest rates decline significantly, the possibility of selling back the bonds to the government at a profit is minimal! It is impossible. One could have stocked bonds for 10 years in the SSBs, with an interest rate of nearly 2.6% p.a, or 1,84% p.a, in the case of one year. This could generate handsome profits in terms of capital gains, in case one chose to sell. However, this is not possible with SSBs. Even when redeemed, the investments could only bring back the initial value of the bonds, which means there are no profits. Moreover, as a result of their current interest rates, it is difficult to convince and sell off these bonds to someone else at a profit. Everyone wants high returns on their investments, something that is currently not guaranteed by the SSBs. Therefore, it is worth considering other alternatives that ensure higher returns for investors.
Singapore Government Securities and Central Providence Fund
The most probable alternative, or replacement of the Singapore Savings Bonds, is the Singapore Government Securities, SGS. The SGSs guarantee the possibility of capital gains on an individual investment. This means that the bonds have the potential of being traded at a profit, either to the government or other third parties. Moreover, The SGSs have higher yields as compared to the SSBs, running for nearly two years. Another alternative that is widely being embraced is the Central Provident Fund (CPF) Special Account. With this program, members stand a chance of earning nearly 6% p.a interest rates on their savings.
This is way far beyond the current rates of SSBs. Moreover, apart from the regular income, the interests accrued on the savings in the CPF Special Account are not affected by inflation, meaning there is a rare possibility that they are going to dwindle. This should be good news for the investors that are considering other alternatives to the SSBs. However, with the CPF Special Account, the money saved cannot be withdrawn until the retirement age of 55. In case one passes on, the money saved up in CPF Special Account is distributed out according to one’s nominees.
The Bottom Line
The Singapore Savings Bonds is a good investment plan for people that want to stash their money away for a few years. The bonds purchased guarantee regular income in terms of returns. The interest rates of the SSBs have been declining since the plan was launched, prompting many people to consider other investment plans. Other alternatives have come, guaranteeing higher returns, with substantial interest rates than SSBs, such as fixed deposit accounts and savings interest accounts.
Still, there is the Singapore Government Securities, as well as Central Providence Fund, which has emerged with better returns and lower investment capital. It is an individual decision on which investment plan best suits their convenience and goals. Moreover, in terms of security, the government has always been considered the most trusted caretaker of people’s money. But if you need to give out an instant loan, whether to family or institution, be very careful.
