Singapore Savings Bonds for Individual Investors

Singapore Savings Bonds for Individual Investors

Singapore, 30 March 2015…

The Monetary Authority of Singapore (MAS) today provided more information on the features of Singapore Savings Bonds. This followed Senior Minister of State Mrs Josephine Teo’s announcement that the Government and MAS would introduce the Savings Bonds programme to provide individual investors with a long-term savings option that offers safe returns .

This will expand the range of simple, low-cost investment options available to individual investors to help them meet their long-term financial goals and retirement needs.

2 Singapore Savings Bonds are backed by the Singapore Government, with features that make them accessible and suitable to individual investors:


i. Principal guaranteed: Investors will always get their investment amount back in full. In other words, they will not suffer any capital losses.

ii. Term of ten years: This allows individuals to save for the long term and receive higher long-term interest rates (which comprise what investors call “term-premium”).

iii. Step-up interest: Investors will earn interest that is linked to long-term Singapore Government Securities (SGS) rates. Unlike SGS that pay the same coupon each year, Savings Bonds will pay coupons that “step-up” or increase over time. As a result, the average interest rate is higher the longer the Savings Bonds are held.

iv. Monthly issuance: This makes Savings Bonds accessible on a regular basis.

v. Flexible redemption: Bond-holders can choose to get their money back in any given month, with no penalty. This means that individual investors do not have to decide upfront how long they wish to invest.

vi. Small minimum investment amount: A minimum of $500, and in subsequent multiples of $500 up to a limit to be announced later. A limit will help to maximise participation and to ensure a broad reach.

vii. Only individuals can apply for and hold Savings Bonds.

3 A factsheet summarising the features of the Savings Bonds is available in the Annex.

4 MAS expects to launch the Savings Bonds programme in the second half of 2015. MAS will provide information on how to apply for Savings Bonds closer to the launch date.


Why is the Government introducing Savings Bonds?
 To provide individuals with a long-term savings option that offers safe returns.

What are its features?

Feature Details:

Eligibility
 Individuals only

Term
 10 years

Interest
 Paid every 6 months
 At issuance, rates are fixed based on the prevailing SGS yields and locked in for each issue

Issuance
 Monthly

Redemption
 Monthly, with no penalty
 Principal and any accrued interest will be paid

Investment amount
 Minimum of $500, and subsequent multiples of $500 up to a cap to be announced

Non-tradable
 Savings Bonds are non-marketable securities and cannot be bought or sold in the secondary market

How much return can I get?

 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. In the last 10 years, the 10-year SGS yield has been between 2% to 3% most of the time.

 If you decide to redeem your Savings Bond early, the average interest per year will be lower than the 10-year SGS yield. For example, if you redeem it after 2 years, the average interest per year on your investment will match the return if you had invested in a 2-year SGS.

 The interest rate schedule for each Savings Bond issue will be announced before applications open.
How long can I invest in Savings Bonds?

 Savings Bonds have a term of 10 years, but you can redeem them before that with no penalty.

How are Savings Bonds different from conventional SGS?

 No price risk: Conventional SGS are tradable and their prices can change, depending on global and domestic interest rates 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.

 Step-up interest: Conventional SGS pay the same interest rate each year. Savings Bonds will pay interest that increases over time to give you an average interest rate that is linked to SGS yields.

How does the step-up interest work?
(Figures are for illustrative purposes only)

 Let’s say you applied for a Savings Bond in May 2015 which has the following interest payment schedule.

 In the first year, you will earn interest based on the average 1-year SGS yields in Apr 2015 (0.9% p.a.).

 In the second year, you will earn a higher interest (1.5% p.a.) compared to the first year (0.9% p.a.), so that on average over the two years you would have received the average 2-year SGS yields in Apr 2015 (1.2% p.a.).

 In the tenth year, the Savings Bond will pay an interest of 3.3% p.a.. The average interest on your investment over ten years would match the average 10-year SGS yields in Apr 2015 (2.4% p.a.).

 At any time during this 10-year period, you can choose to redeem the bond with no penalty and receive your principal ($1,000) with accrued interest. If you hold the bond for the full 10 years, you will get your principal back together with the final 6-monthly interest payment.

When can I start buying Savings Bonds?

 Savings Bonds will be launched in the second half of 2015. We will provide information on how to apply for Savings Bonds closer to the launch date.

Editor
Investments Singapore