Singapore Savings Bonds (SSB) Interest Rate History: The Ultimate Guide

Pros and Cons of SSB (Singapore Savings Bonds)

These are the main features of SSB:

Pros #1: Low-risk

Like other government bonds, your initial principal and interest payouts are guaranteed with SSB. The Singapore government fully backs SSB. It is among the few countries with the highest credit rating in the world. Therefore, SSB suits investors with lower risk-profile who seek capital preservation.

Pros #2: Long-term

SSB is a long-term ten-year bond. You are guaranteed the payout for ten years. The SSB interest rate is unique because it always steps up yearly for the whole bond’s duration. The first year being the lowest and the 10th year being the highest. The steps-up interest rates encourage investors to keep holding for longer.

Pros #3: Flexible

Flexibility is the main benefit of SSB. You can redeem your investment any month without penalty and still earn the accrued interest. You just have to pay a $2 transaction fee (both for application and redemption). Because of this flexibility, you can also use SSB as a short-term instrument to park your cash in the short-term.

Cons #1: Lower 1st-Year Rate

Because of the step-up SSB interest rates, the first-year interest rate is always the lowest. The government may adjust the rate offering to account for this unique requirement to create these step-up rates. As a result, the first-year interest rate may not be as competitive as short-term bonds. If you plan to hold just for the short term and are okay with locking your cash for a fixed duration (6 months or one year), you may consider T-bill instead.

Cons #2: Maximum Holding

If SSB sounds too good to be true, yes, there is a catch… There is a maximum total holding of $200,000 per individual. You can apply or redeem anytime, but the total holding should not exceed $200,000. Although this ceiling is relatively high, some may still find it limiting.

Cons #3: Relatively Low Return

As with other fixed-income investments, SSB interest rates are relatively low and may not beat inflation. This is why SSB is ideal for investors with the lowest risk profile who seek capital preservation.

Singapore Savings Bonds (SSB) Alternatives

The SSB interest rate history above may look attractive. But how does SSB stack up against other fixed-income alternatives?

SSB vs. SGS Bonds

The main alternative to SSB is the SGS Bonds. Both are long-term Singapore government bonds. Unlike SSB, which has a uniform maturity of ten years, SGS bonds have different maturities, such as 2, 5, 10, 15, 20, 30, or 50 years.

SGS Bonds have fixed interest rates for the whole duration of the bonds. It is determined from the auction result.

On the other hand, SSB has steps-up interest rates with the rates already pre-determined before the allotment date. SGS bonds usually have slightly more competitive rates than SSB in the beginning. But the return will be comparable if you hold the SSB until maturity.

SGS doesn't allow early redemption but allows secondary market trading. With secondary market trading, there is a chance investors may lose on the initial principal due to the bond and interest rate market dynamics. SSB investors do not need to worry about this because they can redeem at any month without penalty. SSB is just more flexible and liquid.

Investors who prefer more competitive rates and do not mind the lock-up period of the bond may consider SGS bonds. But for most retail investors who prefer flexibility, SSB is the more attractive choice.

SSB vs. T-bill

SSB is a long-term 10-year bond, while T-bill is a short-term 6-month or 1-year bond. However, due to the flexibility of SSB, some investors use SSB as a short-term instrument. If we compare the interest rate of SSB and T-bill for the short term, they should be in line with each other except during times of economic uncertainty.

In an uncertain economic condition, the yield curve is inverted. When the yield curve is inverted, shorter-term bonds yield higher than longer-term bonds. The bad news is that SSB has steps-up interest rates, therefore, cannot benefit from these higher shorter-term rates. In this economic scenario, T-bill will offer better rates in the short term. In normal economic conditions, both should offer comparable rates, and some investors may prefer SSB due to its flexibility to redeem every month.

SSB vs. Fixed Deposits

Like T-bills, fixed deposits usually have short-term maturity, ranging from 3 to 24 months. SSB generally provides more liquidity due to its monthly redemption. However, in the short term, there is a chance that SSB yields much lower than fixed deposits if the yield curve is inverted. You can check Singapore's latest fixed deposit rates and compare them to the SSB offering to see which suits you better. If you are okay with locking your cash for the duration of the deposit, fixed deposits may be a good choice for parking cash in the short term.

How are SSB Interest Rates Determined?

SSB has step-up interest rates, meaning the first year rate is the lowest and the last year’s rate is the highest. The longer we hold the bond, the higher our effective interest rate is.

Each SSB issuance interest rate is based on the average SGS Bond yields the month before the SSB application date.

Here is the formula to determine the SSB rates:

Source: MAS

Because SSB has step-up interest rates, there could be cases where they must be manually adjusted to enforce their step-up nature.

In a normal economic condition, the short-term rates are usually lower than the long-term rates. This is because there are more risks in holding long-term bonds. In this case, the step-up nature of SSB rates is already there without any manual intervention.

However, short-term rates may be higher in an uncertain economic condition than longer-term ones. This phenomenon is called an inverted yield curve. In this scenario, the rates do not step up by default. MAS will need to manually adjust the rates, lowering the shorter-term rates to ensure the final SSB offering has step-up rates.

This is why you may have experienced a situation where SSB offers a 2.8% interest rate for the first year, but short-term bonds (T-bill) or cash management accounts offer 4%. But if you hold the SSB until maturity, your effective interest rate will be comparable to the 10-year yield in SGS bonds. You will have a lower effective interest rate if you redeem your SSB in the early years, way before maturity. This encourages investors to save for the long term.

How to Apply for SSB?

You may apply for SSB online via DBS, OCBC, or UOB internet banking. We have written a comprehensive guide on how to buy SSB. You may follow our guide to apply and check your SSB holdings afterward.

How to Redeem SSB?

You can redeem your SSB at any month without penalty and still earn the accrued interest up to the time of redemption. You have to pay a $2 transaction fee. If you want to redeem your SSB, you can do so online via DBS, OCBC, or UOB internet banking. We have written a comprehensive guide on how to redeem SSB with detailed step-by-step instructions and screenshots.