Savings Bonds are a special type of Singapore Government Securities (SGS) with features that make them suitable for individual investors. Savings Bonds are fully backed by the Singapore Government.
Did you know that Savings Bonds are one of the safest instruments you can invest in?
Fully Backed by the Singapore Government
Your principal investment and interest payments are backed by the full faith and credit of the Singapore Government. The Singapore Government has received the strongest from international credit rating agencies.
What Happens When Interest Rates Change?
The prices of conventional bonds can change, depending on current market interest rates. If you invest in conventional bonds, you may receive more or less than your invested capital if you sell them before they mature.
However, you will always get your principal back when investing in Savings Bonds. Once a Savings Bond is issued, interest rate changes will have no effect on the bond’s value.
Should market interest rates rise, there is no price loss on your Savings Bond as you can get your full principal value back if you decide to redeem the bonds with the Government.
Should interest rates fall, you will not enjoy any price gains. However, you would benefit from the above-market interest rates on your Savings Bonds.
Returns and Interest
Savings Bonds offer you a return that corresponds with how long you hold them for. You receive less interest at the start, but the amount "steps up" or increases over time. The longer you hold your Savings Bonds, the higher your effective return.
At the beginning of each month, MAS will announce the interest rates for the entire 10-year term of that Savings Bond issue. These interest rates will be locked-in when you subscribe.
Based on Government Bond Returns
The interest rates of each Savings Bond issue are based on the average yields the month before applications for that issue open, and may be adjusted to maintain the "step-up" feature if market conditions do not allow it.
If you hold your Savings Bond for the full 10 years, your return will match the average 10-year SGS yield the month before your investment. In the last 10 years, the 10-year SGS yield has been between 2% to 3% most of the time.
If you decide to redeem your Savings Bond early, you will receive a lower return. You will receive pro-rated, or accrued interest.
In general, an investor who holds a Savings Bond for a given number of years would receive an average return similar to that of an SGS of the same tenor.
Let’s say you applied for $1,000 of Savings Bonds in July 2015, which pays interest based on June 2015 SGS rates. (Figures are for illustrative purposes only.)
In the 1st year, you will earn $9 of interest, for a return of 0.9% over your 1 year investment period.
In the 2nd year, you will receive $15 of interest. On average over 2 years, you would have earned a return of about 1.2% per year.
The interest you earn will step up over time. In the 10th year, you will receive $33 of interest. Based on the interest received from the 1st year to the 10th year, your effective return would be 2.4% per year, which is also the average 10-year SGS yield in June 2015.
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