What other countries can learn from Singapore Savings Bonds
15.12.2019 | 13:07
Singapore is one of the success stories of the modern era. It has an economy described as business-friendly, free, competitive and dynamic. It stands out from debt-ridden economic powerhouses such as the UK and the U.S. A 2018 report showed that the booming southeast Asian country started having budget deficits as recently as 2015. And it is no wonder that the government decided to issue the Singapore Savings Bond to retail investors.
A Singapore Savings Bond (SSB) is a type of bond in which the government borrows money from its citizens over a period of time and pays the principal amount plus interest in return. SSBs were designed for all kinds of investors who want to participate in the Singapore Government Securities but don’t have a lot of cash to offer.
Singapore’s government launched SSBs in October 2015. So far, the government has raised more than $1.9 billion from 57,000 investors.
You can start investing in SSBs with a minimum of $500 for a maximum period of 10 years. Their main advantage is that they can be redeemed at any time without incurring any penalties for investors.
Singaporeans can hold as much as $200,000 in SSBs at an instant. The SSBs are risk-free as they are backed by the government.
Some people have mistakenly treated Singapore Savings Bonds as free money handed out to retail investors. They can’t be more wrong. Governments issue bonds when they want to raise capital and this is exactly what they are doing.
In doing so, the bonds can be considered a safe investment. This comprehensive Singapore Savings Bond review should get you up to speed with SSBs and whether you should invest in them or not.
How and why Singapore Savings Bonds are unique
SSBs are unique in their own right. Investors will be happy to know that the interest goes up every year. This incentivizes investors to:
- Hold their investments for longer periods of time
- Withdraw early because they won’t be penalized for doing so.
This basically means that investors do not have to decide beforehand how long they plan to hold their investment.
SSBs were created to complement other existing investment options such as fixed deposits, endowment plans, equities, and unit trusts. Unlike other investments, SSBs cannot be traded on the markets like shares.
SSBs are different from fixed deposits because the latter is guaranteed by a bank and has a tenor of up to three years.
Can other countries learn from Singapore’s savings bonds?
Is it possible that other countries can draw inspiration from Singapore’s Savings Bonds and launch similar financial products or at least improve what they are already offering?
It’s a simple ‘yes.’
Other countries can learn the following from SSBs:
Take care of your retail investors
A number of countries offer investment opportunities suitable for institutional investors and high net-worth individuals. The majority of investor laws favor the rich and perpetuate the cycle of generating wealth for a small group of elite people.
The Singapore Savings Bonds targets retail investors who can make an investment with a minimum of $500. In the end, almost everyone can invest SSBs.
Raising huge capital in smaller amounts
Have you ever heard that it is easier to raise $1 million from a million people than to raise the same amount from one person?
Some governments have failed to raise the desired capital because they are only targeting the rich. You should note that Singapore is not the first country to offer savings bonds to the retail public. Other countries such as the U.S., the UK, Thailand, and Malaysia have done before.
What will the government use the raised money for?
Many of you will obviously want to know what the capital raised will be used for. The government is not issuing the bonds to spend the money on expenditures such as infrastructure. The money will be invested.
Who can buy SSBs?
Singapore Savings Bonds were designed with individuals in mind. Corporations cannot buy them. Any individual over the age of 18 can buy SSBs. Foreigners are eligible to purchase the bonds. The savings bonds are issued on a monthly basis. However, individuals cannot always get as many bonds as they want because it all depends on demand.
You can always apply to purchase savings bonds as long as you have not reached the maximum limit. SSBs are non-transferable except in the case of death. At this point, they are legally transferred to the beneficiaries of the deceased.
Pros and cons of SSBs
There are upsides and downsides to investing in Singapore’s Savings Bonds. Here is a list of the pros:
- Very low risk
- Tax-free
- Eligible to all resident over the age of 18
- Affordable as only a minimum of $500 is required
- Flexible investment term
- Relatively good returns
The cons are:
- There is a cap to how much a person can invest. Those with more money have to look for other options.
- Lacks compound interest.
Final thoughts on Singapore Savings Bonds
The Singaporean government created a good financial product that caters to almost all of its citizens so that they can have a starting place for their investment portfolio. There are so many reasons why you should invest in SSBs.
They are a tax-free investment, which is different from other investments where the government taxes the profits you make from your investment. The lack of tax from the government means that you earn higher returns.
We have already highlighted that SSBs are a secure investment guaranteed by the government. And it comes with great flexibility. The SSBs are liquid as they are redeemable at any moment any time without paying any penalties. You can also cancel the investment before the 10-year maturity lapses.
In essence, SSBs were designed to cater to all types of investors without having to go through a lot of bureaucracy.
