With inflation at an all-time high, people in Singapore are on the lookout for investment instruments with higher interest rates and low-to-moderate risks.
After all, the stock market isn't particularly stable in 2022.
In this article, we are going to look at fixed deposits in Singapore as well as the Singapore Savings Bonds (SSB), both of which have recently increased their interest rates significantly.
Singapore Savings Bonds (SSB) were first introduced back in 2015.
Fully-backed by the Singapore Government, no capital loss will be incurred and you can always get your investment amounts back.
The SSB is a long-term bond offering step-up interest, meaning that the longer one invests in it, the higher the interest income. It is also flexible, and one can exit the SSB at any time without any penalties.
In 2022, SSB came into the limelight when its interest rates spiked if held to full maturity.
From 1.78 per cent p.a. in January, SSB interest rates increased to 3.47 per cent p.a. In December 2022.
| Month | Interest Rate (p.a.) |
|---|---|
| January | 1.78 |
| February | 1.64 |
| March | 1.79 |
| April | 1.91 |
| May | 2.09 |
| June | 2.53 |
| July | 2.71 |
| August | 3.00 |
| September | 2.80 |
| October | 2.75 |
| November | 3.21 |
| December | 3.47 |
Another factor to note for SSB is that the variance of the step-up interest is smaller for recent batches of issuance.
This makes it more forgiving for users who need to pull out of their SSB prematurely.
| Month | 1st Year Interest | 10th Year Interest | Variance |
|---|---|---|---|
| January 2022 | 0.45% p.a. | 2.44% p.a. | 1.95% p.a. |
| December 2022 | 3.26% p.a. | 3.58% p.a. | 0.32% p.a. |
Assuming that an individual decides to withdraw his money from his January 2022 SSB after two years, he will only be able to get an average return of 0.86 per cent per year, a 52 per cent drop from the 1.78 per cent p.a. expected return.
An individual withdrawing his money from the December 2022 SSB after two years will get an average return of 3.26 per cent p.a., just 0.32 per cent p.a. (or 10 per cent) below the expected return of 3.47 per cent p.a.
Fixed deposits (FD) are also known as time deposits. They generate guaranteed interest over a specified duration for the money that you deposit in the bank. The interest is paid out at regular intervals, be it quarterly or annually.
While you're able to withdraw your money, doing so before the tenure is up will reap you less or even no interest at all.
FD rates differ month to month, depending on when you open your account, and the rate you earn depends on your tenure and the amount you deposit.
Typically, tenures for FDs range from as short as a month to as long as four years. Naturally, more attractive interest rates will be accrued to longer tenures of at least two years.
Just like any other investment tool, the reason why FD are in the limelight now is due to rising interest rates.
On Oct 6, 2022, it was reported that banks in Singapore lifted their FD interest rates to a 24-year-high.
| Bank | Min. Deposit | Duration | Interest (p.a.) | Valid Until |
|---|---|---|---|---|
| DBS | $20,000 | 5 months | 3.80% | Further notice |
| Standard Chartered (Online) | $25,000 (Fresh Funds) | 12 months | 3.10% | Nov 30, 2022 |
| UOB | $20,000 (Fresh Funds) | 12 months | 3.90% | Nov 30, 2022 |
| OCBC | $20,000 (Fresh Funds) | 12 months | 3.40 - 3.90% | Further notice |
| Bank of China (Mobile banking) | $5,000 | 18 months | 3.25 - 3.40% | Further notice |
| ICBC (E-banking) | $500 | 12 months | 3.75% | Further notice |
| RHB (Mobile Banking) | $20,000 | 12 months | 3.90% | Further notice |
| HSBC | $30,000 (Fresh Funds) | 12 months | 3.20% | Nov 30, 2022 |
| Hong Leong Finance | $20,000 | 18 months | 3.18 - 3.30% | Further notice |
| CIMB Singapore | $10,000 | 18 months | 3.75 - 3.80% | Nov 30, 2022 |
| Citibank | $50,000 (Fresh Funds) | 12 months | 3.40% | Further notice |
| Maybank | $20,000 | 24 months | 3.20% | Further notice |
Generally, individuals can expect interest rates ranging from 3.10 per cent p.a. to 3.90 per cent p.a. for FD durations ranging from five months to 24 months.
Minimum deposits required for FD in Singapore, however, are typically $20,000 and above, with only a few exceptions.
Namely, ICBC with a minimum deposit of $500, BOC with a minimum deposit of $5,0000 and CIMB with a minimum deposit of $10,000.
To help you choose between FD and SSB, we look at the various features of each investment tool.
| Factors | Singapore Savings Bonds | Fixed Deposits Singapore |
|---|---|---|
| Duration | 10 years | 5 months to 24 months |
| Interest rates | 3.47% p.a. (December 2022 SSB Interest Rate) |
3.10 - 3.90% p.a. |
| Risk Level | Low | Low |
| Penalty for early withdrawal | None (except to forgo stepped-up interest) | Possible early withdrawal fee + prorated interest or forgoing of interest earned |
| Minimum Deposit | $500 | $500 to $50,000 depending on the banking institution |
| Ease of Access | High | High |
Generally, both SSB and FD in Singapore are low-risk investment tools that are easy to understand and easily accessible.
The main differences to take note of for individuals considering between the two investment tools are the duration of investment, liquidity and the minimum deposit.
For individuals who are looking to lock in their money for a shorter period of time, FD would be a more attractive option to them.
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However, they must make sure that they are able to leave the money in the account for the stipulated period. Otherwise, they might incur penalties that would let them earn zero interest.
Individuals who do not have an emergency stash of at least six months of expenses are advised to go for SSB instead as there are no early withdrawal penalties.
With the lower variance in SSB step-up interest rates, users are still able to enjoy moderate returns despite the early redemption of their SSB.
The capital required (minimum deposit) required for FD in Singapore is generally higher than SSB, which only requires a minimum of $500 to start investing.
While there is a bank, ICBC, which offers fixed deposits starting from $500 for a nice return of 3.75 per cent p.a., most banks require a minimum deposit of $20,000 and above.
Ultimately, it also depends on the investment horizon for your money. If you require the money back within a short period, a FD would be a better option for you.
However, if the money is meant for long-term goals, such as your retirement savings, having your money locked into SSB at an acceptable interest rate for a longer period of time might not be a bad thing.
Now that you have learned about the main differences between FD in Singapore and SSB, you might also be interested in how T-Bills work and whether it can be a suitable investment instrument for you.
ALSO READ: What are Singapore treasury bills and are they a good investment?
This article was first published in ValueChampion.
