Singapore Savings Bonds As Part Of Emergency Funds?

Singapore Savings Bonds As Part Of Emergency Funds? This is a question which I have been pondering recently.

I am sure those who follow financial blogs would have heard of Singapore Saving Bonds (SSB).

For those who are not aware of SSB, it is essentially a form of Singapore Government Securities (SGS) that is available for subscription by individuals. The aim of SSB is to provide individuals with a safe and flexible way to save for the long term. If you hold your Savings Bond for the full 10 years, the average return per year on your investment will match the returns of a 10-year SGS at the point of your investment. In the last 10 years, the 10-year SGS yield has generally been between 2% to 3%.

When SSB was launched in 2015, I did not bother to subscribe to it due to the following reasons: 

   1) The first year interest rate of 0.93% was lower than CIMB’s Fast Saver Account, which                        provides 1% interest. Also, the CIMB account allows me to withdraw my money immediately. 

   2) If I require more interest and want my funds to be locked up for a 1 year period, I would rather           go for fixed deposits (FD). Back then UOB’s fixed deposit interest rate was 1.6% for a period of         13 months. SSB’s average interest rate over the first three years was only 1.32% then.

      Notes:
      - Based on investment amount of $3,000
      - Calculations exclude SSB application fee of $2 and/or redemption fee of $2.

In recent months, SSB’s interest rate for the first few years have increased. This changes the context entirely. The SSB interest rate for the first year is now higher than most FD. If you are intending to park your money in FD, it is time to consider SSB. This is the reason why the SSB has been oversubscribed in recent months and has to be allocated.

As illustrated in the above table, the difference between the interest amount in the first 3 years when SSB was first launched and in 2017 compared to 2018 is huge. It is nearly a $70 difference! 

So should we park part of our emergency funds in SSB? 

Emergency funds are always used in an emergency which you can never predict. As such, it has to be readily available within a short period of time. Most people do not park such funds in stocks or FD because you may have to sell the stock at a loss or draw out your FD without interest. 

The wonders of SSB is that 

   1) it allows early redemption monthly, in multiples of $500 with no penalty. 

   2) accrued interest will be paid! In layman terms, accrued interest is the interest that you have               earned on your SSB since the last interest payment was made.

With that it is quite clear to me that I will be parking part of my family's emergency funds into SSB. As interest rate is likely to continue going up, it would be more feasible buying SSB over a 12 months period. While means splitting up the funds into 6 to 12 amounts and buying SSB each month instead of putting in a lump sum amount.

You may ask, why not park all emergency funds in SSB?

Well, SSB redemption application closes at 9pm on the 4th last business day of the month. Redemption proceeds will be paid by the end of the 2nd business day of the following month. So technically, you need at least 6 business days to cash out your funds. If you really need the funds immediately, within a couple of days, it is not feasible.

Is SSB safe?

SSB is fully backed by the Singapore Government. You can get your investment amount back in full - no capital losses any time. If this is not a safe investment tool, I do not know what is. In the extremely rare scenario, the government defaults, then Singapore's future would have already been jeopardised. By then, we would be facing high unemployment, MNCs would have pulled out from Singapore and local stocks sky dive down.

What are your thoughts?