The Role Singapore Savings Bonds Play in Our Retirement Plan

Image of a piggy bank with quote: Do SSBs have a place in your retirement portfolio?

Both locals and foreigners aged 18 years and above can invest in Singapore Savings Bonds. All you need is a bank account with one of the three local banks and an individual CDP Securities account. If you’re not residing in Singapore, this article may be less relevant to you. Nevertheless, you may still be interested to find out how Mr Wow and I put together our retirement portfolio. 

Between December 2017 and June 2019, Mr Wow and I invested S$200,000 in Singapore Savings Bonds. The average return was 2.23% p.a. over a period of 10 years. 

As interest rates rise, bond rates have also gone up, so since August 2022, we have been redeeming our Saving Bonds and buying new ones that give better returns. As of today, we have given all our Savings Bonds ‘a new lease of life’ with a higher average return of 3.1% p.a.. 

In the current environment, 3.1% is nothing to shout about. However, if yield is the only thing we are after, we wouldn’t have bought Savings Bonds in the first place. 

Our retirement portfolio looks like a soccer team. There are three groups — the reserve, the defence and the offence — and each group comprises players with unique but complementary abilities. Singapore Savings Bonds form part of our reserve. Their primary role is not to score goals but to provide stability and support at short notice.

This is not a ‘how to buy Singapore Savings Bonds’ article. There are countless such articles on the Internet and I know you don’t need another one. What I want to discuss today is whether Singapore Savings Bonds have a place in a diversified retirement portfolio. 

  1. Key Features of Singapore Savings Bonds
  2. Yield Should Not be the Only Consideration
  3. The Role Singapore Savings Bonds Play in Our Retirement Portfolio

1. Key Features of Singapore Savings Bonds

To use Singapore Savings Bonds constructively, we need to first understand their key features. 

  • It’s as safe as it gets: First launched in October 2015, Singapore Savings Bonds are a type of Singapore Government Securities. Like Treasury Bills (T-bills) and SGS bonds, they are released and fully guaranteed by the Singapore Government, which has consistently held a AAA credit rating from international credit rating agencies. 
  • It’s long-term: New tranches are issued every month, with fixed interest rates that step up over a 10-year tenure. Interest payments are made every six months after issuance. 
  • It’s easy to invest: You can start small. The minimum investment amount is S$500 (capped at S$200,000 per individual) and can be made via cash or funds from the Supplementary Retirement Scheme.
  • It’s not your typical bond: Unlike T-bills and SGS bonds, Singapore Savings Bonds are not transferable or tradable on the secondary market.
  • It’s highly liquid: You can choose to redeem your investment fully or partially in any given month, with no capital loss or penalties for early exit. Accrued interest on the redemption amount will also be paid to you.

2. Yield Should Not be the Only Consideration

The cut-off yield on the recent six-month T-bill that closed on 18th January was 4.0% p.a.. It hit 4.4% last month. Time deposit (aka fixed deposit) rates are even more attractive, e.g. OCBC is currently offering 4.08% p.a. for an 8-month tenure to its 360 account holders. This month’s Singapore Saving Bonds only has an average return of 2.97% p.a.. 

So why put your money in Saving Bonds if T-bills and time deposits can give you higher yields? 

Well, Savings Bonds have two distinctive plus points, i.e. high liquidity and flexible investment period.

High Liquidity

Let’s look at liquidity first. If you haven’t read my previous article The Importance of Liquidity in Personal Finance and Investing, I hope you will take some time to read it. Liquidity is about having ready cash and liquid assets that can be easily converted into cash. It is crucial to your overall financial health as you do not want to be strapped for cash in the event of economic stress such as job loss. 

If you need a safe place to park your cash reserve, you should definitely consider Singapore Savings Bonds as you can redeem your investment any time and get your principal and accrued interest on the first business day of the following month. Besides high-yield savings accounts (but with hoops to jump through, e.g. minimum salary deposit and minimum credit card spend), where else can you get this kind of liquidity at such decent rates?

Image of dollar bills with quote: Singapore savings bonds offer liquidity at decent rates.

With time deposits, although you can access your funds instantly, an early withdrawal fee (i.e. penalty) will be imposed if you withdraw your money prematurely. You will probably lose some or all of your expected interest.

As for T-bills, they are more illiquid than time deposits. Although you can sell them on the secondary market through a primary dealer (i.e. one of the three local banks), their trading volume is low and their prices may be lower than what you paid if the market condition is not in your favour. Thus, it’s not so easy for you to exit your position before maturity. 

T-bills are more illiquid than time deposits.

Flexible Investment Period

With Singapore Savings Bonds, you not only get liquidity. You also have the flexibility to hold them for 10 years — returns guaranteed. That’s a decided advantage, especially if your total investment yields more than 3%.

You have the flexibility to hold your Savings Bonds for 10 years.

T-bills and time deposits may give you higher returns now, but what’s going to happen when they reach maturity six months to a year down the road? You will have to find another place to park your cash, hopefully with good returns. 

I know many people believe that rising inflation is the new normal and that high interest rates are here to stay. But unless we have a crystal ball, we really don’t know for sure. Put it this way. How many people including the experts in the IMF and central banks actually foresaw the global surge in inflation over the past year? A number of variables cause inflation to persist. We can read the tea leaves and try to predict how things will pan out, but it’s really anyone’s guess. I know I’m no expert.

Image of crystal ball in hand with quote: Unless we have a crystal ball, we really don't know for sure if high interest rates are here to stay.

If you buy Singapore Savings Bonds and interest rates go down, at least you have ‘locked in’ a decent yield for 10 years. If interest rates go up, you still have the option to redeem your investment fully or partially any time before maturity. You can either move your money elsewhere or buy new Saving Bonds that give higher average returns. Frankly, I can’t think of another low-risk investment that allows this much flexibility. 

3. The Role Singapore Savings Bonds Play in Our Retirement Portfolio

Now back to my retirement portfolio (aka soccer team) with Mr Wow. As mentioned, we split what we have into three groups, each serving a different purpose. The reserve provides healthy liquidity (15%). The defence provides stable income (25%). The offence provides long-term capital growth (60%). To learn more about our strategy, do check out my article The Retirement Bucket Strategy Demystified.

Right now, the ‘players’ in our reserve are high-yield savings accounts, Singapore Savings Bonds and T-bills. However, we plan to kick T-bills out next month (have to wait till maturity) and direct the money to an 8-month time deposit with OCBC. At 4.18% p.a. for Premier Banking customers, OCBC time deposit is more attractive than T-bills right now. 

Also, to reiterate an earlier point, time deposits are more liquid than T-bills (but it’s best not to make an early withdrawal unless you really need to free up cash). Hence, Mr Wow and I will only ‘recruit’ T-bills again if their interest rates are substantially higher than time deposits. 

Singapore Savings Bonds are definite keepers as they offer maximum safety, liquidity and flexibility. It’s important to us that we are able to access/deploy our cash easily without penalties. Currently, we are a little overweight on cash, so we plan to rebalance our portfolio by acquiring more equities at an opportune time.

Singapore Savings Bonds offer maximum safety, liquidity and flexibility.

Yes, we are mindful of the risk-return trade-offs. The lower the risks, the lower the returns. The returns from Savings Bonds are indeed modest, but our reserve is not positioned for income or growth. It exists so that our defence and offence can play the game with peace of mind. Without a strong reserve to fall back on, there’s no soccer team, so to speak.

Image of soccer team in arms with quote: with a strong reserve to fall back on, our defence and offence can play the game with peace of mind.

A retirement portfolio should have an appropriate balance of growth, income, capital preservation and flexibility. There are a number of factors that deserve careful consideration and returns are just one of them. You also need to think about day-to-day expenses and emergencies, and adequately shield yourself from market hiccups and crashes. Singapore Savings Bonds can play a constructive role in your portfolio by providing liquidity and flexibility. 

A diversified portfolio containing a blend of asset classes helps to balance out the risks and maximise returns. Read my article 4 Main Asset Classes: A Beginner’s Guide to learn more. 

Learn how to reduce risk and maximise returns in hard economic times. Read Investing During a Recession: What You Need to Know.

Mrs Wow

Mrs Wow (aka Lynn) became debt-free in 2018, achieved financial independence in 2019, and retired in 2020 at the age of 42. She believes in staying invested even if there’s a level-5 shit storm. A homebody, she spends her free time reading, blogging and listening to music. Follow her on 𝕏 (@wowpursuits).

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