SSB 10-year return of 3.16% highest in 2023. Switch from T-bills and fixed deposits?

What happened?

The interest rates on T-bills and fixed deposits have been declining in recent months. However, interest rates on the Singapore Savings Bonds (SSBs) have just risen further! 

The latest SSB (SBOCT23 GX23100T) offers a 1-year interest rate of 3.05%, and a 10-year average interest rate of 3.16%. 

Earlier, we discussed on a CNA podcast why T-bills and SSBs might still be worth investing in.

Let us dive deeper into latest issuance of the SSB to understand how the interest rates offered compare to T-bills and fixed deposits. 

Is it worth applying to the latest Singapore Savings Bonds (SSBs)?

#1 – 1-year and 10-year interest rate higher than previous issuance

The 1-year interest rate on the latest SSB has risen to 3.05% from 3.01% in the previous issuance (SBSEP23 GX23090F)

The average 10-year return has also gone up to 3.16% from 3.06% in the previous issuance (shown in chart below).  

You might be wondering why has the 10-year return gone up more significantly compared to the 1-year return.

As we shared in the Business Times, this is because we have seen a significant jump in the 10-year Singapore government bond yield over the past few weeks. 

This follows the increase in 10-year US government bond yields, which reached a 16-year high recently. 

On the other hand, Singapore government bond yields with shorter maturities have not risen as much. In fact, we have seen a decline in the cut-off yield of the 6-month Singapore government bond in recent months. 

The 10-year average return on the SSB of 3.16%  is higher than the average 10-year return on the SSB of 1.86% over the past five years.

Historically, we only saw a higher 10-year average return in the issuances from November 2022 to January 2023, when the return reached as high as 3.47%. 

#2 – Issuance size increased to $800 million

It is worth noting that the size of the current issuance has been increased to S$800 million from S$600 million in the previous issuance. 

This could help to allow more investors to be allocated the SSBs, even if demand were to rise with the higher interest rates offered. 

In the previous issuance of the SSB, all applicants within the individual allotment limits were able to get full allocation, as there were only S$523 million of applications for S$600 million of SSBs offered. 

As shown in the chart below, total SSB applications of S$523 million in the September issuance was slightly above the previous month's applications, but remains significantly below the recent peak of S$2.2 billion in November 2022. 

If the applications were to rise to levels we saw in October 2022 to January 2023, then investors may only get partial allocation of the SSBs once again.

#3 – Singapore T-bill and fixed deposit accounts offer higher interest rates compared to SSB 1-year return

The 1-year interest rate of 3.05% in the latest SSB issuance is lower than the cut-off yield of 3.74% in the 1-year Singapore T-bill auction in July. It is also below the cut-off yield of 3.70% in the 6-month Singapore T-bill auction on 31 August 2023. 

However, SSBs offer more flexibility compared to the T-bill, as it is capital protected and can be redeemed anytime.

The 1-year interest rate of 3.06% is lower than the best 1-year fixed deposit rate of 3.55%, as well as the effective interest rate on some savings accounts. 

What would Beansprout do? 

The increase in the 10-year average return for the latest SSB is definitely good news for investors wanting to lock in higher returns for a longer period of time. 

It is worth noting that with a 10-year average return of 3.16%, the latest SSB would offer one of the highest 10-year average return historically. 

With the higher interest rates offered by the latest SSB, demand for the SSBs could also increase. The good news is that the total amount of SSBs issued has been increased to S$800 million from S$600 million last month.

If you are worried that you may not get your full allocation of the SSBs or the next issuance of the SSBs will come at an even higher interest rate, we can consider building a bond ladder to  enable us to earn a passive income while reducing exposure to interest rate fluctuations.

However, if you are interested to earn a higher interest in the short term, there are other products which currently offer a higher interest rate also worth considering.

Apart from the best 12-month fixed deposit account which offers an interest rate of 3.55%, the CIMB Fast Saver account and the Maybank iSAVvy account are both offering a promotional interest rate of 3.5% per annum for new customers or fresh funds by existing customers currently.

Applications for the latest issuance will close on 27^th September 2023. Learn more about how to apply for the SSB with our comprehensive guide to the SSB.