The name is Bond, Singapore Savings Bond (Part 2).

On 26 March, I blogged about the Singapore Savings Bond (SSB) and during last night's "Evening with AK and friends", we talked about it too.

I am of the opinion that the SSB's coupon is unlikely to be as high as the CPF-OA's base 2.5% interest rate although it has been said that the coupon will be linked to long term Singapore Government Securities' (SGS). If we look at the yields of the 10 years to 30 years SGS, they are above 2% to under 3%.

The SSB gives holders the flexibility of early termination without incurring penalties. Holders will not have to worry about price volatility if they were to sell their SSBs before maturity date. Bonds are supposed to be safer if held to maturity. With the SSB, there is no need to hold to maturity and will be equally safe. This is a big plus.

Of course, now, what is on our minds is what will be the yield?

During last evening's session, Azrael, a fellow blogger whom I got to know not too long ago shared that the yield might be between 0.375% to 1.75%. He blogged about it too. You might want to read his blog post: here.

Credit: Yune Ki.

We really have to wait for more details from the Monetary Authority of Singapore (MAS) closer to the date of the launch which has been scheduled for sometime in the second half of this year. Who knows? We could be pleasantly surprised with the yield. 2.5%? Dare I hope?

Although I really like this development, I feel that the banks will have reason to be worried. Of course, by extension, their shareholders should worry too. Interest income forms about 60% of their total income. The finance companies will have to worry too. Interest income forms about 80% of their total income.

These financial institutions' interest income will take a hit if their cost of funds should go up. Cost of funds will probably go up if they have to compete with the SSB for deposits. By this, I mean they will have to offer more competitive rates for their fixed deposits. Will they be able to charge borrowers correspondingly higher interest rates to maintain their NIMs? Well, whichever way we slice it, things will get a lot more competitive for them.

However, all is not gloom and doom because the MAS also said that there will be a cap as to how much SSB each person is allowed to buy. They said that they want a broader reach and I think, by that, they mean that the SSB is not to benefit the very rich but the masses. This is similar to the mission of the CPF. If the cap is rather modest, then, the impact on the banks and finance companies is likely to be minimal. A cap of $20,000 to $50,000 per person, perhaps?

A modest allowance of SSB per person will also mean that the institution that is the CPF remains relevant as a long term savings tool. The SSB could be like the SRS which is an additional tool to help us achieve retirement adequacy.

I do feel that the government will tread carefully so as not to make the CPF less relevant nor cause hardship for the local financial institutions (which will have unpleasant ramifications).

Let's wait and see.

Related posts:
1. The name is Bond, Singapore Savings Bond.
2. National Day Rally (2014): CPF and retirement.
3. SRS: A brief analysis.

An interest rate of 10.68% per annum for a fixed deposit!

In January, I shared in my blog about POSB's Chinese New Year fixed deposit special.

The offer was:

Get 1.88% per annum for a 12 months fixed deposit from a minimum sum of $1,000 to a maximum sum of $1,000,000.

I tried taking part in it and because I am such a dinosaur with IT stuff, I wasn't sure if my application went through.

In fact, when a reader asked me about this during the second "Evening with AK and friends" last week, I was not able to give a clear answer.

Anyway, I checked earlier and I found that my account has been credited with $88. Apparently, I was one of the first 10,000 customers! My application was successful!

We need little happy surprises like this from time to time in life.

For POSB customers who deposited only $1,000 and received the $88 ang bao, they are actually getting an interest rate of 10.68% per annum!

In fact, it is more than that since the $88 ang bao is given now and not at the end of the 12 months period!

Thank you, POSB, for the generous ang bao.

I'm smiling. :)

Where to put your emergency funds? Fixed deposits aren't too bad. See related post number 1 below.

Related posts:
1. A special chest for emergency fund.
2. Should I put money in a foreign currency FD?