Singapore Savings Bond (Part 4): Good or not?

More details have been released with regards to the Singapore Savings Bond. Here is a quick and very simple summary:


1. Person must be at least 18 years old, have a bank account (DBS, POSB, OCBC or UOB) and a CDP account.

2. Application for the bond will be through the ATMs (DBS, POSB, OCBC or UOB) or internet banking (DBS and POSB only). Fees will be charged by the banks for application and redemption requests.

3. New Savings Bond to be issued every month. Application and requests for redemption must be done before the window closes 4 working days before end of the month. Must be in multiples of $500.

4. Application amounts of $500 to $50,000 are allowed but each person can only hold a maximum of $100,000 of Savings Bond at any one time.

Source:
http://www.channelnewsasia.com/news/singapore/mas-on-how-to-apply-for/1839400.html

Quite obviously, the Savings Bond (just like the CPF) is not created with HNW individuals in mind. 

It is meant to help the average Singaporean who is more of a saver and who wants a safe place to park his savings which will reward him with a higher interest rate compared to a paltry 0.1% paid by some banks for money in savings accounts now.

I must first state the obvious and that is the Savings Bond is a better place to park our savings than a regular savings account if we have more liquidity than we need on a monthly basis. The most obvious reason for saying this is the much higher interest rate.

Although the Savings Bond is not as liquid as a regular savings account, it really is not too bad. The minimum lock up period is basically one month.





We could apply for a savings bond this month, receive it next month and if we decide that we need the money back, we could request for a redemption and get the money back in the following month. We would be paid a pro rated interest income based on the coupon for a holding period of 1 year (which is 0.9% per annum based on an example given by the MAS). We will not suffer any loss of capital in the process either.

If the holders of these Savings Bonds would like to get higher interest rates, they must hold the bonds for longer periods of time. How does this work?

If someone should hold it for the full one year before redemption, he could enjoy a coupon of 0.9%. If he should hold the bond for another year, in the second year, he could receive a coupon of 1.5% (using the example given by the MAS earlier). So, on average, it would be 1.2% per annum which is the coupon for a 2 year bond.

The coupon for each following year steps up until the 10th year and the average coupon for each of the 10 years could be 2.4% (which is the coupon for a 10 year bond around now).

In my earlier blog post on the Singapore Savings Bond, I said that it does not seem very attractive for me, the operative word being "me". When I said I have reservations about it and that I don't really like it, I was thinking about me. OK, why did I say what I said?

For a while now, I could get higher interest rates from fixed deposits offered by the banks and I feel that interest rates will only go higher in future.  So, for example, one year or so ago, a 13 months fixed deposit in UOB was offered an interest rate of 1.08% p.a. Today, the offered interest rate is 1.45% p.a. This is a big increase in a year.






Of course, we must note the following points about the fixed deposits:

1. Minimum amount required is $20,000.

2. No interest will be paid in case of early redemption.

So, logically, for someone who has less than $20,000 to be deposited or who might need to make an early redemption in case of an emergency or opportunity (depending on whether the money is in his emergency fund or war chest), if $20,000 is all he has, this option is out.

However, if someone has quite a bit of spare cash, then, whatever liquidity is not required for the immediate future, fixed deposits with higher interest rates might make more sense than the Savings Bond in terms of returns. Just remember to have the fixed deposits in tranches of $20,000 (or whatever is the minimum sum required by the bank).

The Singapore Savings Bond is a good thing to have as it allows people to get higher interest rates for their savings with as little as $500. The very short minimum lock up period with no risk of capital loss are favourable points too.

Whether the Savings Bond is the best option for us, however, would depend on our circumstances, our motivations as well as the alternatives available to us.




-------------------
Added (3 Feb 2017):

Monetary Authority of Singapore has added 
three more application channels for Singapore 
Savings Bonds (SSBs) - OCBC's and UOB's 
banking portals and OCBC's OneWealth app.

MAS said in a news release (Feb 1) 
that since the start of the programme, 
a "significant number of investors" applied 
for the bonds through DBS/POSB's Internet 
banking portal and that there were requests for 
more online options. Those interested can also 
apply via ATMs of the three Singapore banks.

Source: http://www.channelnewsasia.com/news/singapore/more-application-channels-for-singapore-savings-bonds/3483842.html

Related post:
Singapore Savings Bond (Part 3).

Beyond needs and wants is the price of convenience.

Frequently, I would mention that there is a price to be paid for convenience. When something is more convenient for us, it usually means that it requires less or no work on our part. Usually, this can only be so because someone else has done much or all of the work for us.

Whether something is convenient or inconvenient for us is usually relative. If we have to do a lot of work in order to save some money, then, it might not be worth the trouble. Of course, I understand that what is considered inconvenient will differ from person to person. So, I am just sharing what any reasonable person might agree with.

For example, at last year's InvestX Congress, I shared on stage how I walked to a nearby supermarket to get a bottle of water instead of buying the same in a food court where I had dinner with some friends. It was probably a 50 meter walk. It wasn't too far away.

So, the inconvenience that I had to suffer to buy bottled water from a supermarket was negligible. For more convenience, I would have had to pay $1.50 for the same bottled water in the food court while it was just $0.60 in the supermarket.

Hmmm....

For people who are addicted to coffee, I have also mentioned in my blog before how we could save lots of money by not buying coffee from coffee shops and to simply bring a packet of 3 in 1 coffee mix to work daily. 

It isn't too inconvenient to put a packet of 3 in 1 coffee mix in our bag to bring to work, is it? Depending on where we usually get our daily coffee fixes, the savings could range from maybe a dollar to several dollars a day.

For an event last month, I used the example of herbal tea. Herbal tea? Yes, in a place like Singapore where it is summer the whole year round, shops selling herbal tea, including Chinese medicine halls, do a roaring trade.


(OMG! This is Panda Dung Tea and guess how much is it?)

How much does it cost to take away a 500ml plastic bottle of chrysanthemum and ginseng herbal tea? $1.50 or so, I would guess. (If you were to look carefully, in some shops, they have kept their prices unchanged but the bottles have become slimmer. Same height but slimmer.)

OK, the question is whether it is inconvenient to make our own herbal tea? Alamak, must buy chrysanthemum flower, ginseng roots and liquorice. Throw in boiling water, let it cool, bottle and then bring to work. So much work! Definitely too inconvenient!

What if I were to show you a herbal tea bag? Yes, a tea bag. Just bring a packet to work each day and just let the tea bag steep in warm water. Have freshly brewed herbal tea in seconds. Very inconvenient? I don't think so.

Cost? $1.05 for a pack of 3 tea bags from NTUC Fairprice. (2016 UPDATE: It is now $1.50.)

Each tea bag could easily produce up to 1.5 litres of herbal tea. This is my experience.

If you drink a lot of herbal tea like I do, you might want to consider this product which is made in Singapore.

I feel that very often people are worried about losing face. Alamak! I am sure people talk about me frequently about my habits but these people don't matter, I feel, my bank account does.

So, beyond thinking whether it is a need or a want, the next time you think of buying something, just pause for another moment and think whether you are paying too much for convenience, if any.

Related post:
How to recession proof your life?

Note: This is not an advertorial. AK derives no monetary benefits from sharing this find.