Time to upgrade your SSB yield if you have not done so!

If you are like me who have started buying SSB since it was launched and/or through 2016 & 2017, you may want to examine your returns from your current SSBs and consider upgrading.

First, let’s see a chart that shows the 1st year yield of the monthly SSBs from the maiden issue to the most recent one available for our application.

As you can see, the first year interest yield of SSBs declined progressively from 1.2% per year soon after its launch to the lowest point of 0.77% in Nov 2016 and then climbing back to 1.2% by Dec 2017 before pushing towards 1.8% in recent months as US Fed started raising interest rate.

From this chart alone, it should already prompt us to reflect whether we should “renew” our older SSBs for the newer ones. This is especially so when there is a cap to how much of the SSBs we can own. If we hold to the older lower yield ones, then we are forgoing the newer higher yields if we have already reached the cap of $100,000.

However, the story around SSBs is not so straight forward. As many of you know, the interest rate of SSBs will increase from year to year, the longer you hold, the higher your interest rate.

To make things even more complicated, the yield curve can be flat or very steep, i.e. flat meaning that the yield only grows gradually from year 1 to year 10 while steep is exactly what the word means, it literally jumps from year to year. Hence, judging from the first year interest yield is not enough, we need to examine the profile of yield increase if we are thinking of renewing.

Another important point of consideration is the time reference. If you want to renew your SSBs now, some of your existing SSBs will be in their 2nd going to 3rd year, some in their 1st going to 2nd and some are in their first year. The interest rate can be very different.

To really maximise the return is a complicated affair which is time-consuming and probably beyond me. So I just look at the immediate returns and make a decision. It may not be optimal but I will make do – favouring immediate gain over Long term gain.

Below is the interest rates of all the SSBs in their first 4 years (none of the SSB has reached 3rd year yet, but some will be delivering their 3rd year yield very soon).

The yellow boxes marked the the next interest yield that the specific SSB is going to deliver to you. Eg the Oct 2015 will deliver 1.93% to you for the next 2 distributions (Oct 2018 and Apr 2019) before increasing by a hefty 100 basis point to 2.93% in Oct 2019.

If you are holding on to the SSBs issued in the 2nd half of 2016, I think you should consider liquidating them and use the money to buy the newer SSBs. For example, the Oct 2016 one is going to pay 0.89% only in Oct 2018 and then increasing to 1.28% only in April and Oct 2019 before increasing again to 1.75% in April and Oct 2020. But look at Aug 2018 issue, it is already offering you a 1.78% from April 2019 onward and remember, the yield can only go up each year and not down. Isn’t it tempting to switch?

The beauty of SSBs is that you are not penalised from redeeming early and our govt actually pays us up to that month’s interest … unlike the fixed deposit which zeroised your interest rate if you redeem before maturity date. It actually creates more incentives to redeem and switch. And it is easy to do so, you can do it via ATM or in your comfort at home via the Internet Banking, So good, right?

Well, some of you may lament that it is very tedious, no time, it is complicate, but … like I once coached a junior who was complaining that it was difficult to upgrade the hardware and change the mindset of people to adopt the new technology to increase profitability of the business ….. if you want to generate more money for the company, there is no shortcut, its boils down to your hard work, ingenuity, perseverance and patience. If money is so easily to gain, everyone would have done it already … where got wait for you one …

Have a great investment week ahead!

Regards, Warriortan

P.S. for those of you who wants to know about Singapore Saving Bonds, you can click on this link: About Singapore Saving Bond

If you want to download the interest rate to “play around” with it, you can click on this link: SSB Interest Rate from MAS

I have also created a table that shows the 10 years interest rate for SSB as follows if you are interested. Have fun.