Singapore Savings Bonds vs Fixed Deposits: Which One Will Make You The Most Money?
The one thing I really hated about playing fighting games in the arcades? That sickening announcement of “Here comes a new challenger!” Now, I’m no slouch when it comes to beating computer opponents, but when a human player challenges me, it usually marks the end of my game and a waste of money.
I bet that’s how banks were feeling with the announcement by MAS that they would be introducing the Singapore Savings Bonds. The Singapore Savings Bonds made the laughable fixed deposit interest rates banks were offering then look even lamer by comparison. As we predicted, the banks are now fighting back with higher interest rates. Is this a win-win for us, the regular consumers? Let’s see how the two challengers stack up in a simple scenario:
Case Study: Janet has $50,000 and wants to invest it in Singapore Savings Bonds or fixed deposits
Maybe she inherited it, maybe she earned it from her lucrative business, maybe she got it in a legal settlement from her divorce with a physically abusive ex-husband. Doesn’t matter. The point is, she now has $50,000 and wants to use it and earn some money. She’s not much of a risk-taker, so she narrows down her options to either the upcoming Singapore Savings Bonds or a fixed deposit account. Which will earn her more money?
Challenger A: Singapore Savings Bonds
Come September 1st, there’s definitely going to be a long queue at the ATMs. That’s when applications open to buy the first Singapore Savings Bond. Essentially this is a risk-free, principal-protected investment product that rewards you with higher interest rates the longer you hold on to them. Based on current figures, this means that you’ll earn 0.9% interest for the first year, 1.5% interest for the second, up to possibly 3.3% interest for the 10th year.
On average, therefore, Singapore Savings Bonds could earn you 2.4% per year over 10 years, but only if you hold on to them for the full 10 years.
Challenger B: Fixed Deposit Accounts
In response to the introduction of the Singapore Savings Bonds, banks are tripping over themselves to offer lucrative interest rates on their fixed deposit accounts. The print version of yesterday’s copy of The Straits Times put out a table of several fixed deposit interest rates currently in the market. Online, that table has been updated with one even more comprehensive, featuring all the top interest rates.
Here are the top 3 promotional interest rates per year for a $50,000 amount:
Bank | 12 Months | 24 Months |
CIMB | 1.70% | 1.90% |
OCBC | 1.50% | - |
Standard Chartered | 1.50% (10 months) | 1.75% |
The one big catch? These promotional rates are only for specific amounts of cash deposit and for specific tenures. Many of the promotions will actually expire by the end of the month next week. Will the rates increase or decrease after this month? It’s anyone’s guess, at this point.
Now, back to our case study…
Remember, Janet has $50,000 to buy Singapore Savings Bonds or to put them in a fixed deposit account. Here are three possible scenarios.
Scenario 1: Janet only wants to set aside the $50,000 to earn money for a year
$50,000 for a year | Interest Rate | Total Interest Earned |
Singapore Savings Bonds | 0.9% per year (estimated) | $450 (estimated) |
CIMB SGD Fixed Deposit | 1.7% per year | $850 |
Note: The CIMB promotional rates will currently end by 31 July.
If Janet wants her money back after one year, she will earn about $400 more by putting it in a CIMB SGD Fixed Deposit than if she bought a Singapore Savings Bond.
Scenario 2: Janet only wants to set aside the $50,000 to earn money for two years
$50,000 for two years | Interest Rate | Total Interest Earned |
Singapore Savings Bonds | 1.2% per year (estimated) | $1200 (estimated) |
CIMB SGD Fixed Deposit | 1.9% per year | $1900 |
Note: The CIMB promotional rates will currently end by 31 July.
If Janet doesn’t need the cash for two years, she will earn about $700 more by putting it in a CIMB SGD Fixed Deposit than if she bought a Singapore Savings Bond.
Scenario 3: Janet wants to set aside the $50,000 to earn money for 10 years
$50,000 for two years | Interest Rate | Total Interest Earned |
Singapore Savings Bonds | 2.4% per year (estimated) | $12,000 (estimated) |
CIMB SGD Fixed Deposit | 1.9% per year | $9,500 |
However, if Janet can do without the $50,000 for the entire 10-years of the Singapore Savings Bonds tenure, she will be able to earn an estimated $2,500 more than if she had put it in the best fixed deposit account. This is a best case scenario on the assumption that the promotional rates remain the same for the Fixed Deposit account but as was mentioned earlier, what happens after the 24 months is anyone’s guess.
In conclusion
The main deciding factor when choosing between fixed deposit accounts and Singapore Savings Bonds is clearly how long you’re willing to set aside your money. If it’s just for one or two years, you’re definitely better off putting it in a fixed deposit account. Of course, whether we’ll ever see these promotional fixed deposit interest rates again will make for a fun guessing game.
However, if you’re willing to think long-term, then the Singapore Savings Bonds are the perfect choice for those who don’t want any risk in their investments. Not only will they be able to earn much better than even the best promotional interest rate over the long term, but you also have the option to redeem your investment at any time, without a penalty.
On a side note, it seems that now, insurance agencies are trying to get in on the game as well, with some companies having released some very attractive endowment plans. More on that soon, so stay up to date with us on Facebook.
Are you going to buy Singapore Savings Bonds when applications open September 1st? We want to hear from you.
The post Singapore Savings Bonds vs Fixed Deposits: Which One Will Make You The Most Money? appeared first on the MoneySmart blog.
MoneySmart.sg helps you maximize your money. Like us on Facebook to keep up to date with our latest news and articles.
Compare and shop for the best deals on Loans, Insurance and Credit Cards on our site now!
More From MoneySmart
