Singapore Savings Bonds: What Fixed Deposits Need To Do To Up Their Game
Worried you don’t have enough money to invest? Or don’t know where to start because there are just so many products out there? The Singapore government, in all its wisdom, knows that you should start investing as soon as you possibly can. So, they’re introducing a new investment product called the Singapore Savings Bonds. If you’ve not heard of a bond before, just think of it as you storing money with the government, for them to use in whichever way they choose, and the promise is for them to return it to you with interest. You can check out more information in our article about savings bonds in Singapore.
The Singapore Savings Bonds are almost unbeatable as a low-cost investment option. The first Singapore Savings Bonds will be issued on October 1st and you can apply for them from September 1st. A new Singapore Savings Bond will be issued every month over the next 5 years, so there’s no need to rush to buy the first one.
But don’t wait too long either! Here are 5 ways the Singapore Savings Bonds are better than the other low-risk option out there – fixed deposits.
1. The interest rate will increase the longer you hold onto the Singapore Savings Bonds
This aspect of the Singapore Savings Bonds is similar to the way fixed deposits currently work. The longer you invest your money, the higher the interest rate and the more you earn. As an example, currently for a DBS Fixed Deposit, the interest rate for a year is 0.25% compared to 0.55% for two years.
The term for the Singapore Savings Bonds are set at 10 years, so you can expect a relatively high interest rate if you invest for the full term.
2. But… you can get back your money back at any time with no penalty
However, unlike fixed deposits, you can liquidate your money invested in Singapore Savings Bonds at any time without incurring any penalty. This is a huge advantage over a fixed deposit accounts. Currently, DBS will penalise you for early withdrawal from your Fixed Deposit by either giving you less than your principal amount, less or no interest, or both.
3. Singapore Savings Bonds are principal-guaranteed
There are almost no investment products that can guarantee that you will not lose your principal. Other than Singapore Savings Bonds, the only principal-guaranteed investment product is the Fixed Deposit.
4. Singapore Savings Bonds interest rates are linked to long-term Singapore Government Securities rates
There are no Fixed Deposit Accounts that give you more than 1.8% interest. In fact, even a 1.4% interest rate from OCBC is considered a promotional rate and comes with specific terms and conditions. The Singapore Savings Bonds interest rates are reportedly linked to the long-term Singapore Government Securities rates. For a 10 year SGS bond, those have recently been between 2% to 3% per year. Though it’s not exactly clear what the Singapore Savings Bonds rates will be, anything above 1.8% makes them immediately more appealing than a fixed deposit.
5. Minimum of $500 to start
Those who want to invest in Singapore Savings Bonds just need to fork out a minimum of $500. Even DBS, the bank with the lowest requirements, need you to produce a minimum of $1,000 to open a Fixed Deposit Account. This means that the Singapore Savings Bonds would be available to more people than even a DBS Fixed Deposit.
Like that… who wants to put money in fixed deposits?
So, it’s clear that banks definitely need to up their game regarding fixed deposits if they want to remain competitive. We’ve come up with three ways they can stay in the race, and discuss how they affect you, the consumer.
1. Increase Fixed Deposit interest rates across the board
This is a no brainer. For small amounts, fixed deposit rates can go as low as 0.25% for a year. Say you set aside $5,000 for a year. At 0.25%, you’ll only earn $12.50 a year. That’s about $1 a month. All the Singapore Savings Bonds need to do is to offer even a 0.5% return to automatically be twice as attractive an investment option.
Of course, raising the Fixed Deposit interest rates will have repercussions. DBS offers the Fixed Deposit Home Rate home loan package or FHR. By its name, you may have guessed that it’s pegged to their fixed deposit interest rate. When they launched it, it seemed like a great idea because fixed deposit interest rates were expected to stay low. However, with the introduction of the Singapore Savings Bonds, those of you who have FHR home loans might want to pay close attention.
2. Reward Fixed Deposits of larger amounts
The Singapore Savings Bonds are clearly targeted at the average consumer, with the lower minimum amount of $500 as well as a limit to the total investment amount. Banks, in response, should position their fixed deposit products to target high-end investors, since there is technically no limit. Currently, the way banks calculate the interest rates are dependent on the length of the fixed deposit, not the amount. That means, whether you put in $5,000 or $500,000 for 6 months, your interest rate is the same.
Instead, banks should reward those who can afford to set aside more money in their fixed deposit accounts, especially if it’s amounts that are above the limit set for Singapore Savings Bonds.
3. Provide other sign-up bonuses
Banks need to start treating Fixed Deposits the way they treat credit cards. Singaporeans love credit card roadshows because of the attractive sign-up benefits. If banks can offer the same attractions for fixed deposits, it’ll go some way towards capturing the consumer’s attention. Just throw in a luggage bag, a video game console or even an instant coffee machine, and you’d be surprised how quickly customers sign up.
Of course, when that happens, you can be sure that MoneySmart will be the first to roll out a comparison table for the best fixed deposit accounts in Singapore.