Are SSBs Still Relevant In 2023?

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For the past few months, Singapore Savings Bonds (SSBs) have been a hot topic within the local financial community with SSB yields soaring to record-breaking levels.

However, as the U.S. Federal Reserve (Fed) slows down its interest rate hikes going into 2023 with cooling inflation, SSBs has followed with declining yields and is looking to drop even further.

SSB yields have dropped below 3% per annum on a 10-year average for the latest tranche released in early January this year.

With the Fed looking to slow down the rate of interest rate increases and signs of SSBs yields already peaked, are SSBs still relevant in 2023?

SSBs can still fight long-term inflation

The average yearly inflation rate in Singapore is 2.47% from 1961 to 2021. That means our cash loses purchasing power at this average rate over time.

To prevent our cash from losing its value, we must in turn invest it at a rate higher than 2.47% per annum.

SSB is a perfect investment vehicle for that. By buying SSBs that have a 10-year average yield above 2.47% per annum, we protect the purchasing power of our cash for ten whole years. This also mitigates reinvestment risk like T-Bills have because of their short tenures that are less than a year.

This makes buying SSBs justifiable going into 2023 provided it continues to offer yields that fulfils this criterion.

As an added bonus, the CPF Ordinary Account (OA) is currently sitting at an interest rate of 2.5% per annum, which is virtually the same as our average inflation rate of 2.47%.

That makes buying into SSBs with yields over 2.47% not only inflation-proofing, but outperforming the general public who mandatorily contributes to CPF OA. Think of it as beating the average salaryman who knows nothing about investing; at least you will already be performing better than him.

SSBs is still the better alternative to saving accounts

We all know that one person who live by saving accounts and fixed deposits to store their money. They have very little money in the market because they are scared of losing their capital.

There’s nothing wrong with that. If you are the same, you are more conservative and that’s just your way of managing money. But SSBs are a way better way to store your cash as it is virtually the same thing as putting it in the bank, but with a higher interest rate.

SSBs have a 10-year tenure. Even though your money is held in SSBs for 10 years, you can withdraw it the very next month you make a request.

This makes SSBs more liquid than fixed deposits, with a significantly higher interest rate than saving accounts, which are typically offering interest rates that are way lower than 1%. It is a perfect spot for a conservative person to reside in within the investing world.

Furthermore SSBs are directly backed by the government, which means it is technically safer than putting your money with the local banks.

All this makes SSBs a timeless investment for the conservative person with good liquidity and decent rate of return for the risk taken. Perfectly balanced, as all things should be.

Summing up,

SSBs are still relevant given that yields stay above 2.5%, which is the average inflation rate over the years as well as the rate of return of CPF OA. This keeps us ahead of the crowd.

Even if SSB yields drop below 2.5%, it is still an attractive buy for the ultra-conservative investor. It is more liquid than fixed deposits but still pulls a yield significantly higher than saving accounts with the banks.