Read an SSB's interest schedule and explain why the rate goes up each year you hold the bond.
Farah has S$10,000 in a savings account that pays her almost nothing (an example figure). A friend told her to "just put it in SSB, the rate goes up every year". So she opened the MAS page, saw a table of ten rates, a column called average return per year and a lot of dates, and closed the tab.
It takes about ten minutes to learn what each part of that table means. Once Farah had done that, she went back to the MAS page and read the whole table in under a minute.
A Singapore Savings Bond (SSB) is a bond the Singapore Government issues for individuals. Lesson 1.1, "A bond is a loan with a fixed timetable", explained that every bond has a face value, interest payments and a maturity. An SSB has all three, and it matures ten years from its issue date.
Most bonds pay the same coupon every year. An SSB's rate rises over time instead, and each year pays at least as much as the year before. This is called step-up interest. The longer you hold, the higher the rate you are paid in that year.
The rate rises because you can take your money back in any month without losing any of it (lesson 3.3 explains how). Since you are free to leave whenever you like, the Government uses step-up interest to pay you more for staying.
There is a new SSB issue every month, and each one has its own schedule of ten yearly rates. A bank does not set these rates, and they are not picked at random. They are linked to the average yields on Singapore Government Securities in the month before the issue, which MAS publishes. The idea is that holding an SSB for a given number of years should earn roughly what a government bond of that length was paying when the SSB was issued.
When ten-year government yields are well above one-year yields, the schedule climbs steeply. When long and short yields are close together, the steps are small and the schedule looks almost flat. MAS sets out the method in detail on its SSB pages.
So the SSB Farah's friend bought last year may have a very different schedule from the one open today. Once an issue's schedule is set, it stays the same even if rates in the economy rise or fall afterwards.
Say an issue has this made-up schedule for years 1 to 10: 2.50%, 2.55%, 2.60%, 2.70%, 2.80%, 2.90%, 3.00%, 3.05%, 3.10%, 3.15%.
The year one rate is what you earn in the first year after issue. To get the yearly interest, multiply the rate by the amount you put in. SSB interest is paid every six months, so that yearly amount comes in two payments. For Farah, 2.50% of S$10,000 is S$250 for the year, so she gets S$125 after six months and another S$125 after twelve months. By year 10 the rate is 3.15%, and each half-yearly payment is S$157.50. The ten rates add up to 28.35%, which comes to S$2,835 in interest if she holds for all ten years.
Each issue has its own payment dates. If you paid cash, the interest goes into the bank account linked to your CDP account. If you paid with SRS money, it goes back into your SRS account. Lesson 3.2, "Applying for an SSB and the limits that apply", covers both ways of paying. Nothing is paid in the first six months. After that you get a small, predictable sum twice a year, so budget for two payments a year rather than a monthly one.
Beside the yearly rates, the MAS table shows the average return per year for each holding period. This is what you would have earned per year, on average, if you held for that many years and then redeemed.
On the made-up schedule, a plain average of the first three rates is 2.55%, and a plain average of all ten is 2.835%. MAS calculates its printed average on its own published basis, so its figure can be slightly different from a plain average like these. Base your decision on the MAS figure.
Choose the holding period that matches when you might need the money. If you might need it soon, compare the one-year or three-year average with what a fixed deposit or T-bill is paying. If you can leave the money for the long term, compare the ten-year average with other long-term safe options.
A common mistake is to treat the year ten rate as the rate the SSB pays. You earn that rate only in year ten, and only if you still hold the bond then.
When you open a schedule, go through it in this order:
Find the issue you are looking at, since each monthly issue has its own ten-year schedule. Read the yearly rates. Year 1 is what you earn in the first year after issue, and each later year is at least as high. Work out the cash: rate x amount gives the yearly interest, paid in two half-yearly payments. Find the average return per year for the holding period you expect. If you may need the money sooner, compare the 1-year or 3-year average with fixed deposits or T-bills. If you won't, compare the 10-year average with other long-term safe options. Use the average MAS prints, not one you worked out yourself. Don't treat the year 10 rate as what the bond pays.
Open the latest issue's schedule on the MAS page now and note the three figures that matter for most decisions: what you would earn per year if you held for one year, for three years and for the full ten.
Download the interest schedule for the latest SSB issue from MAS. Write down the yearly rate and the average return at years 1, 3 and 10.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).