Should You Switch to December 2018 Singapore Savings Bonds?
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| Average interest per annual for 1-year and 10-year period |
This month SSB has again reached another high since inception at 1.89% interest for a holding period of 1 year. Not only did the short term interest rate raised, the long term interest rate for holding 10 years had also raised to 2.57% from the previous month. This makes the current issue of SSB more attractive regardless of whether you are intending to hold it for short or long term. As mentioned in my last SSBs update, I am currently parking a portion of my war chest in SSBs as a pseudo-savings account. As the interest rate has increased, I will be swapping last month SSB with the current issue.
Recently, I came across a few posts and comments online suggesting people to swap their SSBs of lower interest with the higher interest rate ones. The idea is right but they failed to mentioned a few points which will affect whether one should swap their bonds.
The first point is that when considering whether you should swap your bonds, you should compare the 'average interest per annual' and not the interest rate at the particular year. The average interest is a better representation of the interest you will collect taking into consideration the number of years you have been holding the bonds.
The second point is duration of holding. The average interest per annual for the first years may be lower but it does not necessarily means that you should switch the bond as the average interest rate may catch up in the later years. Lets take a more straightforward example by comparing the July 2018 and December 2018 issue. As you can see from the table below, the July 2018 issue has a lower average interest for the first 7 years, catches up on 8th, and overtakes the December 2018 issue in the 9th and 10th year. So, if you are holding the July 2018 issue and the intention is to hold for 10 years, then you should not switch with the December 2018 issue as the July issue will have a higher average interest per annual after 10 years. But if the intention is to do early redemption before 2025, then you should consider to switch to the December issue. The following table of average interest per annual for your own reference.
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| Other Issues of SSBs Compared to Dec 2018 Issue |
The last point I would like to add when switching SSB is that do be mindful that you may not be fully allocated for your application due to high demand. You may end up with less SSBs than you originally have.
As you can see from the table above, almost all issues of SSBs should be replaced with the December 2018 issue which provides higher interest. The demand for this issue should increase but there will also be some people who will be waiting for the possibly even higher interest in the January issue.
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| December 2018 Issue |
Details on this month SSB can be found on SGS website.
The redemption timeline does not fit into window for current subscription.
ReplyDeleteThe redemption proceeds will only be available for the next month's offer i.e. Jan 2019 SSB. So you always need to "predict" the subsequent offer before you can decide to redeem your SSB holdings.
You need cash-on-hand in savings or current accounts that is accessible via ATM or internet banking to apply for current offer.
MAS / govt has already forseen indiscriminate "switching" and taken steps to prevent it.
Yes. I did mentioned in previous post that the redemption turnaround time is 1 month and you will need cash on hand to subscribe. I think the focus is not to predict the next month interest but to make sure you have enough cash to rotate those issue with lower interest into those with higher interest. The logic is simple, if next month the interest is higher, then I will replace. If lower, just keep holding the existing ones.
DeleteThere are administrative fees for replacing which was also highlighted before. So make sure the gain for replacing is more than the fees. In fact, switching is made possible by MAS by giving accrued interest for early redemption.
The interest rate for 10 yrs is always around 2.5% +/- 0.1%. If holding for 10 yrs then no need to keep jumping on amd out. I dont foresee MAS will raise that rate to say 3% because CPF rates are peg to 10 yrs rate. The short end is moving but not the long end.
ReplyDeleteIn addition, how much more interest a year can you get with just $100K maximum ny jumping in and out? Not much apparently. If one can apply for $1M, then its a different story.
If someone offers me a deal to pay $4 for a guarantee return of $5, I will just take the deal. Hahaha..
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