Redeem an SSB and explain why cashing out early never costs you any of the amount you put in.
Money in a Singapore Savings Bond (SSB) can stay invested for up to ten years, but you may need some of it sooner. Before you take it out, you should know what comes back, what leaving early costs, and how to tell whether moving to a newer issue is worth it.
Farah (an invented example) is a freelancer. Eighteen months after buying her SSB, her laptop dies in the middle of a project and she needs about S$2,000 by next month. She worries that taking money out of a ten-year bond will mean a penalty, or selling for less than she paid. Neither is true. There is no penalty for redeeming early, and you never get back less than you paid.
Redemption means selling all or part of your SSB back to the Government, which you can ask to do in any month. You get the full face value of the amount redeemed, which is what you paid, plus the interest earned on it that has not yet been paid. SSB interest is paid half-yearly, so this is the interest since your last half-yearly payment. Farah holds S$10,000 (an example figure) and redeems S$2,000. She gets S$2,000 plus the interest on it since her last half-yearly payment, and the other S$8,000 stays invested on its original schedule.
To redeem, decide how much to take out. Redemptions must be in set multiples, which MAS lists with its other limits. Submit the request through the channel you bought with: your bank's internet banking or ATM for cash holdings, or your SRS operator for SRS holdings. Requests have a monthly cut-off, and the money arrives early in the following month. The exact cut-off and payment timing are on the MAS SSB page.
An SSB does not trade between investors. You sell it back to the Government, which has promised to buy it back at face value in any month. With no market price, rising interest rates cannot push its value down. Even if rates rise sharply the month after you buy, your SSB is still worth exactly what you paid.
An ordinary traded bond behaves differently. In lesson 2.1, "Price and yield move in opposite directions", a bond's price fell to 95.55 when market yields rose from 3% to 4%, because a buyer wanted a 4% return on a 3% coupon. A holder who needed cash that day had to sell at 95.55.
This is what makes SSBs unusual among bonds. You get a government bond's safety without the price risk that normally comes with a long maturity, which makes an SSB a good fit for money you might need before the maturity date.
Leaving early has no capital loss, but it still costs you in three ways.
The step-up you give up. With step-up interest, later years pay higher rates, as lesson 3.1, "How SSB step-up interest works", showed. Leave after two years and you never collect years three to ten, so your average return is the lower two-year figure on the MAS table rather than the ten-year one. The transaction fee on redemption, which MAS lists on its site. On a large holding it barely matters. On a few hundred dollars it can take a noticeable slice of the interest. The wait. The money arrives the month after you ask, so an SSB is not instant cash. Lesson 3.4 covers what this means for emergency money.
If a newer SSB issue pays much more than one you hold, you can switch: redeem the old one and apply for the new one. Whether it is worth it is a sum you can do.
Start with the timing. You redeem this month, the cash arrives early next month, and the earliest new issue you can apply for then is issued the month after. The cash sits for about a month in a savings account earning very little. A switch also costs two transaction fees, one for the redemption and one for the application, at whatever MAS charges at the time.
Say Farah holds S$20,000 of an older issue bought a year ago. Over the next three years, years two to four, it pays 2.1%, 2.2% and 2.3%. Keeping it earns 20,000 x (2.1% + 2.2% + 2.3%) = S$1,320. A new issue pays 3.0%, 3.0% and 3.1% in its first three years, which on S$20,000 comes to S$1,820. The difference is S$500.
Now subtract the idle month. One month of interest at the old 2.1% on S$20,000 is about S$35, which leaves about S$465 over three years, less the two fees. In this example, switching is clearly worth it.
The sum can come out the other way. If the gap between the two schedules is small, a month of idle cash plus two fees can wipe it out. There is also a risk on the application side. In a popular month the new issue can be oversubscribed, with more applications than bonds (lesson 3.2 describes this), so Farah might get only part of what she applied for and have cash left over to place elsewhere. Switch only if a clear gain remains after the idle month and fees, and allow for a partial allotment.
When you run your own comparison, use the real schedules from MAS for both issues, cover the same three-year stretch for each, and count the gap month and the fees before you decide.
Take two real SSB schedules from MAS and work out whether moving from the older issue to the newer one would earn you more interest over three years.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).