A common question that many friends ask me about, is what they should as fresh grads start investing in. In the next few weeks, we’ll be talking about medium and high-risk investments but for today, I’d like to begin by discussing low-risk investment options.
These are investments that place your capital at little to no risk. However, the returns on these investments are also relatively low. Investing in any of these low-risk investments helps consumers counter the effect of inflation, but leaves little to no room for growth, beating the extremely low-interest rates Singapore banks offer on their Current/ Savings accounts which can go as low as 0.05% a year.
Whats A Bond?
A bond is an investment where you the investor, lends money to a company/ country at a stated interest rate. In Singapore, this is generally a fixed rate that does not change over time.
Although bonds are relatively safe, there have been instances where the country/ company that issues the bonds defaults (or in laymen terms, sometimes companies and even countries cannot afford to repay the bond and just shut down/ stop paying back the money owed, for example Swiber’s collapse or Argentina’s debt default.
The returns of bonds can vary sharply. In general, corporate bonds get a higher return (Such as Genting that offered a bond with a 5.125% Interest rate) but offer more risk, bonds issued by countries such as the Singapore government tend to offer lower returns but little to no risk. The Singapore Savings Bonds have an extremely low minimum investment with only about $500 required (Based on the upcoming March 2017 figures, bondholders will get an average return over 10 years of 2.38% annually, if they hold the bond to its end.)
Where Can I Buy A Bond?
Singapore Savings/ SGS Bonds – ATM/ Internet Banking
Corporate Bonds – Through Fundsupermart or brokerages such as Maybank Kim Eng, Phillips Securities, etc.
What is a Fixed Deposit?
A Fixed deposit/ Term deposit is a deposit that is made into a bank for a fixed period of time. During that period of time, the investor, you, will not be able to withdraw this deposit without incurring a penalty. In exchange for “Locking-in” your deposit, you the investor will be paid a higher interest rate.
Honestly speaking though, between the Singapore Savings Bonds and Fixed Deposits? We’d pick the Singapore Savings Bonds for its lower tenure and higher returns.
Fixed deposits are generally considered low risk investments and you the investor can rest assured knowing that your deposit is insured by the Singapore Deposit Insurance Corporation (SDIC). However, one must note that SDIC only covers up to $50,000 per bank, which includes savings accounts, current accounts, etc. It has to be said though that is relatively unheard of for a Singapore bank to collapse.
IMPORTANT NOTE: SDIC insures only Singapore fixed deposits held in Singapore fixed deposit accounts. Foreign currency fixed deposits and structured deposits do not enjoy the same protection
Because Fixed deposits are so common and easy to find, the interest rates they offer tend to be very low, anywhere between 0.30% to 1.50% as at time of writing.
Where Can I Get A Fixed Deposit?
Walk into almost any bank branch or apply through your internet banking
We hope you enjoyed reading about the different safe investment options available to the average Singaporean investor. Do you think we left something out? Leave us a comment in the section below! Love what we write? Share us on Facebook!