Savings Bonds for individuals to start at S$500 later this year
Reuters file photo
SINGAPORE — Individual investors looking for better returns on their savings than the low rates offered on fixed deposits have good reason to cheer: The Monetary Authority of Singapore (MAS) will launch the Singapore Savings Bonds in the second half of this year as a low-entry, risk-free vehicle to help Singaporeans meet their long-term financial goals and save up for retirement.
The MAS yesterday provided details about the Savings Bonds, which were first announced by Senior Minister of State (Finance and Transport) Josephine Teo last Thursday. The bonds will be made available only to individuals — at an affordable minimum sum of S$500 and in subsequent multiples of S$500, up to a limit to be announced later.
The Savings Bonds, whose principal is fully guaranteed by the Government, will pay interest rates that increase the longer the investment is kept, unlike conventional Singapore Government Securities (SGS) that pay the same rate each year.
With a tenor of 10 years, the Savings Bonds allow individuals to save for the long term, but they also offer a flexible redemption feature, where the individual can choose to cash out the bond in any given month with no penalty. There will also be a monthly issuance so that the Savings Bonds are accessible on a regular basis.
The Savings Bonds also carry no price risk compared with conventional bonds, which are tradable and whose prices change depending on global and domestic interest rate movements and financial market conditions.
“Hence for SGS, you may receive more or less than your invested capital if you sell your SGS before maturity. But you will always get your principal back in full when investing in Savings Bonds,” the MAS said yesterday. “Savings Bonds are a safe and flexible option to maintain the value of your nest egg,” it added.
Mr David Gerald, president and chief executive of the Securities Investors Association (Singapore), or SIAS, lauded the new product.
“The Savings Bonds provide Singaporeans with a Government-guaranteed savings product that has a return that is above the inflation rate. In addition, the indicative rates are also above the current fixed deposit rates offered by the local banks. SIAS recommends that Singapore citizens consider placing their savings in the Singapore Savings Bonds without fear,” said Mr Gerald.
Interest rates on the Saving Bonds will be pegged to long-term 10-year SGS rates. While the rates may fluctuate, they have been stable at between 2 and 3 per cent in the last 10 years.
“If you hold your Savings Bond for the full 10-year term, the average interest per year on your investment will match the return if you had invested in a 10-year SGS at the point of your investment. If you decide to redeem your Savings Bond early, the average interest per year will be lower than the 10-year SGS yield,” it said.
Financial experts said the Savings Bonds offer an attractive new option for savers.
“The current low interest environment has not been helpful in boosting our savings. So I believe the launch of the product will benefit many individuals, especially older persons who tend to rely on returns from less risky financial instruments – such as income bonds – to boost their retirement income,” said Dr Joelle Fong, Senior Lecturer in Finance at SIM University.
Ms Gemma Tay, Head of Deposits, Investments & Insurance Strategy at UOB, said the low minimum investment sum will make it accessible to those who have just entered the workforce, helping them to start saving and investing for the long term.
When asked if banks would need to raise their deposit rates to attract savers, independent economist Song Seng Wun said: “This is very new, so I don’t see everybody rushing to take out their fixed deposits. We will have to see what happens when the bond is actually launched to see if there is that big rush of liquidity away from bank deposits into Savings Bonds.”
The MAS will provide information on how to apply for the Saving Bonds closer to the launch date.
