Which Safe Haven for your Hard-earned Money?

Interest rates have been going up and needless to say, the topics going around these days are the attractive Fixed Deposits and Singapore Saving Bonds (SSB) rates. That has certainly generated a lot of excitement and for a good reason.

In the backdrop of COVID-19, we have the Ukraine war with the potential to escalate to a nuclear exchange, a gloomy global economy sleepwalking seemingly towards recession, US-China rivalry and climate change, just to name a few. Oh, and not forgetting all those cryptocurrencies meltdowns. All these negative news have solidify the default status of the color RED in markets worldwide.

Just as it looks like the dearth of safe havens for common folks like us, these headlines provided us the much needed hope and possibilities.

Banks in Singapore lift fixed deposit rates further with latest round of promotions

CNA, 6 October 2022

Singapore Savings Bonds 10-year average return hits record high of 3.21%

CNA, 03 October 2022

Looking at the queues at the banks around the neighborhood, I am definitely not the only one who sat up and got moving. Of course, there are many other options such as cash fund (robo-advisors), money market funds, treasury bills, and so on. However, we will focus on Fixed Deposits and Singapore Saving Bonds (SSB) as they are the more popular options.

What are Fixed Deposits

Fixed Deposit (FD) or Time Deposit, is a type of bank account that promises you a fixed rate of interest for your principal based on the agreed tenure, or term (i.e. 6 months/1 year/2 years/etc.). In return, you agree not to withdraw the amount of funds. Your deposits are protected if your bank is listed in Singapore Deposit Insurance Corporation (SDIC), up to S$75,000.

What are Singapore Saving Bonds (SSB)

Singapore Savings Bonds are debt instruments issued and backed by the Singapore Government. They enjoy good credit ratings and are considered to be safe investments. Fully backed by the Singapore Government, you can always get your investment amount back in full with no capital loss. Touch wood, if you cannot get your money back, you have more important things to worry about.

From 1 Feb 2019, you may subscribe to SSB using your Supplementary Retirement Scheme (SRS) funds to grow your retirement nest egg. The Individual Limit has been raised from S$100,000 to S$200,000.

Similarities
  • Both provide a safe option for growing your money
  • Your deposits/capital are protected
  • Interest rates are about the same in general.
Differences
Fixed DepositSingapore Saving Bond
Insured up to S$75,000 by SDIC, depending on bankFully backed by the Singapore Government
Various Tenure Options10 years, can withdraw any time
Forfeit all interest for early withdrawalRetain existing payout prior withdrawal date
Interest payout end of tenurePayout every 6 months
Require account with bankRequire bank account with one of the 3 local banks and an individual CDP Securities account
At most 1-2 business day to process withdrawalsNeed to wait till specific payout date per month
Full capital amount will be investedAllocated amount subjected to allotment limit
No maximum limitMaximum limit of S$200,000
Can have joint accountPersonal account only
Promotional rates subjected to terms and conditionsStandard rate for all
Might have minimum requirementStart with as little as S$500
The Better Choice?

Fixed Deposit

  • Comfortable with short term lockdown funds
  • Only need a bank account / Unable to have a CDP account
  • Able to get cash fast at the expense of interest payout
  • Have lump sum for capital and want to place full amount
  • Fresh funds and/or minimum placement for promotional rates not an issue
  • Able go to a physical bank branch for certain transactions (for some banks)

Singapore Saving Bond

  • Comfortable with longer term horizon
  • Regular savings in small amount when lump sum is not possible
  • No requirement to get cash fast (because need to wait for payout date)
  • Already have or wants to create CDP account and have local bank account
  • Able to accept allotment limits
  • Can subscribe digitally (i.e. online banking, ATM, etc.)

You might be interested in a recent post from the Turtle Investor – “How To Check Singapore Saving Bonds Allotment Results And Useful Tools“.

Special Mention: Stablecoins (Cryptocurrency)

This would probably be the last thing on a lot of people’s mind after what has happened in the cryptocurrency world – Terra Luna, Celsius, Three Arrow Capital (3AC), Hodlnaut and other DeFi attacks. Hence, they are NOT recommended as a form of safe investment. Unless you know what you are doing, it would be prudent to avoid them. It is possible to lose all your assets with no legal recourse. There are no form of protection such as SDIC or FDIC, and they are not backed by any financial institution nor government.

Observations

Not sure if those are isolated incidents but some old folks might be obsessed with chasing after the rising fixed deposits interest rates. After hearing from their friends or relatives that XYZ bank is having a higher interest rate than what they had signed up for, they are bent on switching their accounts without considerations.

Why would you want to take out your fixed deposit account which is due in a month or two, and forfeit the interest, just to chase another one with a higher interest rate? Or to jump from a month or two year old account to another one just because of that increase in 0.5%?

I am not sure if that is a good idea unless they really have done their calculations. Or perhaps I am the one who got it wrong?

Updates

19 Oct 2022 – For fixed deposits, you can request to withdraw to a bank account of your choice or by cheque. For Singapore savings bond, the withdrawal will be to the bank account that you have set in your CDP account.

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