Monday, July 18, 2022

The Uniqueness Of The Singapore Savings Bond

The Singapore Savings Bond, or SSB, was introduced by the Singapore Government as a safe, long term and flexible means of investing. Unlike normal government bonds, in which a fixed coupon rate is paid at a prescribed pay date, the SSB rates steps up as each year goes by, thus it is more worthwhile to keep it long term. Also, the SSB is not subject to market volatility; once redeemed, you will get back the whole sum, plus any interest amount accrued.

It is this feature that led to me classifying the SSB as a form of cash-bond hybrid: cash in terms of depository mechanism, and bond if the cash is kept till the end, i.e., after 10 years. Though the redemption is not as instant as withdrawing cash from a savings account in a bank, the cash in the SSB could be withdrawn possibly in about slightly more than a week’s time, depending on which part of the month the redemption request was submitted.


Recently, I could see a lot of hype surrounding the SSB: from investment and non-investment social media chat groups that I am in; from a colleague with whom I had never discussed investing with before; and a relative of mine had suddenly popped me a question about it. This is naturally obvious as SSB are viewed as almost risk-free and the rates are moving up in the past months. The latter is mostly due to the rise of interest rates in the United States, which is positively correlated to our local interest rates, though this relationship is somewhat not so straightforward (and I had explained a bit on this here).


What’s the uniqueness, then, for the SSB? Well, I had already described three of the attributes in my above paragraphs. We shall have a look at them in detail below.


#1: Step-Up Annual Interest Rates


The first unique point about the SSB is the step-up interest rate structure, which is unheard of in other bonds. The rates are published right at the onset of the issuance, therefore you know how much you would be getting from the interest every year.


#2: Not Subject To Market Volatility


The SSB is traded between yourself and the issuer, the Monetary Authority of Singapore (MAS), and no one else. This means it is not subjected to the volatile forces of the market, where most of the risks are. As we know, bonds are susceptible especially to market (i.e., loss of principal/capital) and rate risks (i.e., bonds with higher coupon/interest rates are favoured over those with lower ones, causing the latter to lose their demand). 


The SSB does not have these two big risks: no capital loss (you will get back everything, minus the SGD 2.00 transaction fee if redeemed before maturity) and if the current rates are higher than the one you are holding, you could redeem it and apply again (though fresh funds may be needed as there is insufficient turnaround time to use the redeemed amount to buy the current SSB).


#3: It Is A Cash-Bond Hybrid


I came up with the conclusion of the SSB being a cash-bond hybrid (from The Bedokian Portfolio’s perspective) is due to the following reasons:


Cash – For The Bedokian Portfolio, cash served as a pool where injections, dividends, interest payments and returns are contained, and acts as a starting point to deploy to other asset classes. It is important that cash should not lose its value, which was why I advocated placing them at least in the safety of banks. SSB’s ability to preserve principal (as described in #2) qualifies it suitable to hold cash.


Cash as an asset class is dependent on interest rates for returns. For the SSB, its interest rates are based on the reference yield of the various tenures (1, 2, 5 and 10 years) of the Singapore Government Securities (SGS, commonly known as Singapore government bonds), which, through a series of connections, are positively correlated to U.S. interest rates.


Bonds – Unlike typical means of cash holdings where there is no expiry date, the SSB has a tenure of 10 years. Thus, if held for the full term, the SSB’s characteristic is akin to a bond asset class.




The SSB is a good investment vehicle to include in your portfolio, given the good credit ratings of SGS. The caveat is that an individual is only allowed to have a maximum of SGD 200,000 in SSB, so if you are adopting a 60/40 equities/bond portfolio and the size is above SGD 500,000, you would have to look for alternatives like other SGS, corporate bonds or bond exchange traded funds.




The Bedokian is vested in SSB.

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