time to revisit ssb investments

It Might Be Time To Revisit Your SSB Investments

Have you placed money in Singapore Savings Bond (SSB) in the past 2 years or so? It might be time to revisit your investments. On the 4th of May, Jerome Powell, the US Federal Reserve Chairman, announced that there is a 0.5% increase in interest rates to 0.75 – 1%. This is the largest increase since 2000 and it doesn’t look like it will be stopping soon. They have a target of 1.9% in 2022 and 2.8% in 2023 and 2024 and will be looking at possibly increasing interest rates by 0.5% each time. If you listened to those financial gurus and leveraged heavily into property investments, your monthly obligations will start increasing.

With interest increasing, we are seeing the yields increasing for SSB and hopefully, the banks and other saving instruments like Singlife and Dash Pet increase their rates accordingly. We will look at whether you should swap between SSBs tranches in this article.

Disclaimer: All comments on this blog site are an expression of opinion. You are recommended to consult with a licensed, qualified financial advisor before making any financial decisions.

Low-Interest SSBs Over The Past 2 Years

The SSB rates dropped significantly during the mid-2020s. It slowly increased over 2021 till date but it still remained relatively low. I think that it was anticipated that there will be an increase in interest rates as the latest June 2022 SSB tranch has quite a big bump in interest rates even though the SSB rates were released before the FOMC meeting on the US side.

If you have any money in SSB, especially if you bought in the last two years, you might want to look at the rates of your SSB tranches vs the latest tranches.

When Is The Next Interest Rate Increase?

Although the magnitude of increase in Singapore and US interest rates are sometimes different, our Singapore interest rates are still largely determined by foreign rates. The US announces any change in interest rates during their FOMC meetings.

The next FOMC meetings in 2022 are as follows

  • 14 – 15 June 2022
  • 26 – 27 July 2022
  • 20 – 21 September 2022
  • 1 – 2 November 2022
  • 13 – 14 December 2022

If everything goes according to forecasts, we will see 2 more increases of 0.5% by the end of 2022.

How To Compare Between SSB Tranches?

A simple way to compare SSB tranches across years would be to put them on a spreadsheet. For example, if you would like to compare a 2020 SSB vs a 2022 SSB, you will list the yearly interest rates as follows.

SSB comparison example

Source: MAS SSB Website

In the example given, it is straightforward that it is a definite win to switch over. Additionally, you will be able to “extend” the bond expiry by two years.

In cases that are not as straightforward as this, you will need to make your own call to see if it is “worth it” to swap by comparing factors like when do you expect to redeem and the difference in interest payments. Additionally, the interest rates will also possibly increase further in these coming months and years. But we can just swap accordingly when the need arises.

SSB had been undersubscribed due to the low-interest rates over the past two years. However, the uptake has been increasing and SSB might be oversubscribed soon so you might not get the full amount you bid for. However, if you apply for a smaller amount, you might have a higher chance of getting a higher allotment.

How To Swap SSBs?

There is no function to swap between tranches so we will need to perform both buying and selling of the two SSB tranches simultaneously. You will need the following

  • CDP account number
  • Code of SSB tranche you want to sell
  • Enough cashflow

You will need to make sure you have enough cash flow if you want to swap SSBs. This is because you will need to pay for the “new” SSB before the month-end while you will only receive money from selling the “old” SSB after the month-end. Each buying or selling transaction will also take S$2.

If you are new to SSB or investments, you will need the following.

Cash application

  • Bank account with DBS/POSB/UOB/OCBC
  • CDP account

SRS application

  • SRS account
  • Internet banking with DBS/POSB/UOB/OCBC

For more information, please check out the SSB website by MAS and CDP website by SGX.

Can You Swap SSBs When You Have Reached The Limit?

You do not have to redeem to reduce your SSB balance before purchasing a new SSB. As long as the net amount (purchase less redemption) does not bring your total SSB owned over the current limit of S$200,000, you will be able to purchase and redeem the tranches accordingly in the same month.

Will You Lose Money During The Swap?

Since we will be able to swap in the same month, provided that we have the cash flow, we won’t lose out on any interest.

Will You Lose Money If You Redeem Before Interest Payment?

Although the interest is paid every 6 months, even though redemption is made before interest is credited, we will still receive the redemption amount plus any accrued interest. The following example is listed in their FAQs.

For example, suppose you bought $1,000 of Savings Bonds issued in January that is scheduled to make an interest payment of $6 in July.

If you submit a request in March to redeem the full $1,000 of your January bond, you will receive the following by the end of the 2nd business day of April:

  • Your redemption amount of $1,000; and
  • 3 months’ worth of accrued interest (Jan to Mar), which is about $3.

If you have additional questions regarding SSB, you can check out the FAQs here.

Extra – Other Bonds

One of the best things about SSBs is that their value is fixed. You are able to redeem them at the original value you put in. If you buy S$1,000 of SSBs, you will be able to get back S$1,000 plus any accrued interest. You won’t be able to say the same thing about other bonds. These bonds have market prices and will be affected by market conditions. With interest rates rising, their prices will likely fall. If you own any bonds outside of SSBs (even if they are “backed” by the government), you might want to revisit them too.

Additionally, if you hold any loans (e.g. housing loans taking up a huge portion of a household’s expenses) that will be affected by changes in interest rates, you might want to look at them too. If you are looking at fixed deposits, you might also want to monitor the situation as the yields might go up significantly these two years. You won’t be able to withdraw without penalties if the yields suddenly go up.

TL, DR

Interest rates have been increasing. The yields of SSB have been relatively low these two years but the yields are increasing. If you have the existing SSBs, you might want to revisit the yields and compare them with the latest yields to see if it is “worth it” to swap between tranches.

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