SSB interest rate expected to stay above 3%. Apply now or wait for next SSB?

What happened?

There has been more discussion on the Singapore Savings Bond (SSB) in the Beansprout community recently.

After all, the 10-year average return on the latest SSB (SBAPR24 GX24040Z) has rebounded to 3.04%.

Compared to the T-bills and fixed deposits, the SSB allows us to lock in the interest rate for an extended duration of up to 10 years, while retaining the flexibility to redeem anytime. 

With the rebound in the yield in the 6-month Singapore T-bill, many investors are wondering if we will see a further increase in interest rate for the next SSB. 

This may help us to decide if we should subscribe to the current SSB or wait for the next one.

Let us look at the latest SSB interest rate projection to find out. 

Should you apply for SSB now or wait for the next one?

#1 – Current SSB offers 10-year average interest rate of 3.04%

Firstly, let us look at interest rates offered by the latest SSB.

If you hold on to the SSB for 1 year, you will receive an average return of 2.95%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.04% per year.

From the chart below, the 10-year average return of 3.04% is higher than the rate of 2.88% offered by the previous SSB. 

It is also higher than the average interest rate offered by the SSB historically. 

#2 – SSB interest rate projected to stay above 3% 

As a recap, SSB interest rates are linked to the yields of Singapore Government Securities (SGS). If you are familiar with T-bills, SGS are also Singapore government bonds but with a longer maturity of 2 years to 30 years. 

The interest rates on the SSB are linked to the daily average SGS yields as published by MAS in the previous month.

As an investor in the SSB, your average annual compounded return over any period (eg 10 years) should broadly correspond to the SGS yield of the same holding period (eg 10 year SGS) with a one-month lag.

In other words, the average 10-year return on the next SSB would largely correspond to the yield on the 10-year Singapore government bond or SGS this month.

As seen in the chart below, the 10-year Singapore government bond yield has hovered around the 3% mark in March, as investors continue to debate the number of rate cuts by the Fed this year. 

As of 22 March 2024, the closing yield on the 10-year Singapore government bond yield was at 3.08%, similar to the level at the start of the month. 

As the 10-year Singapore government bond yield has hovered around the 3% to 3.1% level over the past month, this may mean that the 10-year average return for the next SSB might be stable from the current one. 

Based on our SSB interest rate projection as of 25 February 2024, the average return over 10 years for the next SSB may be at 3.06%.

This is calculated using the average of the closing yield of the 10-year government bond so far in March, and assuming that the yield will remain at 3.08% for the remaining working days of the month. 

#3 – Demand for latest SSB likely to increase 

We have seen a sharp decline in demand for the SSB, with just total applications for the March issuance of the SSB falling to S$124 million from S$183 million in the previous issuance.

This would also mark the lowest demand for SSBs over the past year. 

All eligible applicants within their individual allotment limits were able to get full allocation for the previous SSB with the fall in demand.

With the higher interest rate offered in the latest SSB, demand for the latest SSB may increase.

In the SSB issuance for September 2023 when the 10-year average return was at 3.06%, there were S$523 million of applications for the SSB.   

In the SSB issuance for January 2024 when the 10-year average return was at 3.07%, there were S$868 million of applications for the SSB.   

This is still below the S$900 million of SSBs offered in the latest issuance. 

However, do note that the maximum amount of SSBs an individual can hold is S$200,000.

What would Beansprout do?

The latest issuance of the SSB offers a 10-year average return of 3.04%, above the return offered by the previous SSB. 

The 10-year average return on the next SSB is projected to stay at similar levels, as the 10-year Singapore government bond yield was fairly stable in March.

As such, we would consider applying for the current SSB rather than wait for the next one if we are looking to secure the 10-year average interest rates that are above 3% per year.  

We can also start building a bond ladder to smooth out the interest earned on the SSB over time, especially if we are uncertain about the allocation of SSB we would receive as demand increases. 

The actual interest rates for the next SSB may still differ from the current projections, as the Singapore government bond yield may still fluctuate in the remaining days of the month. 

If you are wondering if it might be worthwhile to swap previous issuances of SSB with the current SSB to earn a potentially higher interest, check out our swap calculator.

If you are looking to earn a higher interest rate in the short term compared to the SSB, then it might be worth considering the upcoming 6-month Singapore T-bill auction.

To find out how the yield on the SSB compare with other assets such as FD and T-bill, check out our Compare Yield Tool. 

Applications for the latest SSB close at 9pm on 25 March (Monday). 

Learn more about SSBs and how to apply for SSBs using our comprehensive SSB guide. 

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