Why silly people put their $ in Fixed Deposits
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Today's article will be on government securities, the reason why i got interested into this part of the investment spectrum (i usually go for equities) is because i suddenly found myself holding a lot of cash. Cash that are rotting away in my saving bank account like adolescent teenagers gathering around computer game shops, wasting their time away playing online games.
Then the question strikes me... what am i to do with this sum of money that i was soo blessed with? I couldn't just leave it idling around my account and let inflation eat it's value away, year after year, day after day. Plus, i needed the money to pay off the upcoming loans and other study fees for the next few years to come. Liquidity and length of investment therefore have to be given top priority here.
So, how can one earn better returns without being exposure to any big or even systemic risks and yet have the privileged to use the cash at any given time ?For the general public out there, many people will assume such an investment exist only in forms of Fixed Deposits offered by our local banks. However, in my opinion, Fixed deposits instrument do not offer very good interest rates (returns) at all! In fact if you take a quick look at the facts below, (to keep with consistency, we shall only look at 1 year rates, capping it at 50k)
Visit http://singaporesearchsite.com/singapore-tips/fixed-deposit-interest-rate/ for full chart
you will find that no yearly Fixed deposit rate reach above 1%, the most is offered by RHB at 0.935% with a 50k deposit. Now this fact alone, proves one point. That Fixed deposits gives out F***ing disgusting returns, and it makes me want to throw my shoes at them.
So is there a better alternative? One that is as safe, if not safer then a fixed deposit that gives better returns ?
Like choosing between Gold and Copper, the Singapore government securities also known as (SGS) is definitely a better alternative as compared to a FD and not many people know because the banks in this country keep so silent about.
So lets start with the basics, what is ?SGS
SGS are marketable debt instruments issued by the Government of Singapore through the Monetary Authority of Singapore (MAS). These debt instruments can be in the form of either Treasury bills or bonds. The Singapore Government is obliged to pay the holder of the Treasury bill or bond a fixed sum of money on the maturity date of the security. Thus, when you buy SGS, you are lending your money to the Singapore Government. Although SGS cannot be cashed in before their maturity dates, investors can always sell them in the SGS market. SGS primary dealers are prepared to buy and sell SGS at any time.
So the next question is why does the government issue these instruments?
They do so because of the following reasons
1)Provide a liquid investment alternative with little or no risk of default for individual and
institutional investors;2)Establish a liquid government bond market, which serves as a benchmark for the
corporate debt securities market; and (simply means, other companies uses this rates as a comparison to give out their own loans and bonds, wonder why banks don't follow suit?)3)Encourage the development of skills relating to fixed income financial services
Available in Singapore.SGS's investments are for?
People who have lots of spare cash, either waiting to invest (but still don;t know what to invest) or need to use the money in the near future. Earn extra interest given the amount of short time.
People who do not want to be exposed to systemic/market risks, people who want to invest in very very very safe investments.
People who likes the feeling of the government owing them money.
People who wants to diversify their portfolio, instead of holding cash or putting in FD , this is a better alternative.
Types of instruments offered by SGS
T-bills: They are short-term securities that mature in one year or less from their issue date. T-bills are bought and sold at a price less than their face (par) value, and when they mature, the Government will pay the holder of the T-bill an amount of S$ equivalent to the face value of the bond. Therefore, the interest earned on the T-bill is the difference between the purchase price of the security and its face (par) value. The Singapore Government issues 3-month and 12-month T-bills. For example
Issue code: BQ08150N 3mth T-bills is sold at $0.98 per unit. You bought 1000 units, therefore you spent $980. After three mths, the government will return you a full $1000, this $1000 is known as the "par value" and is 100% guaranteed by the government. Thus your profit is $20. So if you want to calculate the yields (how much you got back as a percentage) $20/$980*100%=2%
Bonds:They are debt securities that pay a fixed rate of interest (called the coupon), usually every six months, for the life of the securities and then their face (par) values on redemption on maturity. In Singapore, SGS bonds are issued with maturities of 2, 5, 7, 10 and 15 years. And if you are wondering what is the meaning of securities, simply go look up the dictionary.
Visit http://www.sgs.gov.sg/pub_guide/faqs/publ_faqindinvestors.html#4 for more examples
Is SGS T-bills better then short term Fixed Deposits?
Just to keep things simple, looking at only 3 mths FD vs 3mths T-bills rates. On average FD 3mths rate is 0.35% vs 3mths T-bills rates of 0.56%-0.675%. Then some of you might wonder the difference between the current rate of T-bills and FD is not much, only 0.34% difference. Consider this , a difference of 0.34% of $1000 is $3.40, if you have $100,000 the difference is $340, likewise $1million is $3400 for every 3 mths. Plus rates in T-bills last year was a whooping 2.1% for a 3mth deposit.
What determines the yield rate?
The yield rate is determined by a few factors, factors like the SIBOR/
Domestic Interbank Rates/ the amount you bid, the outcome of the bidding/ and many other factors that are interlinked between the world's markets.HUH? Got bidding arh?
Yes, that whats makes investing in SGS fun. The bidding will involve competing for the amount of yield (returns) you want to get. Say for example, you want a return of 1.25%, then in your application, you state that you want to bid at 1.25%. However, the higher your bid, the chances of you getting the bill is lower, because other people might bid at 1.1% or 0.90% and in this case, they will get the bill first (priority is given to the lowest bidder). Take note also that if your bid is above the "cut off bid" say at 1.09% (lol) you get nothing.Then again, you can try bidding again for another T-bill issue, (the government issues T-bills on a weekly basis). There are soo many T-bill issues, that one might wonder which one to pick, but according to my interview with the SGS lady on the phone, she says it will depend on your holding preferred period like how long you want to hold for say 3mths or 6mths or 1 year, the yield will then depend on your luck and the outcome. And if your not comfortable bidding and finding it too troublesome, apply for non-competitive bid which will give you the best outcome of the bids provided the T-bill has a uniform pricing function.
So how to apply?
Simple! Go to any of your local bank like DBS/UOB* , walk towards the "can i help you?" table and talk to the lady. Tell her you want to apply for Government T-bills. The lady will kindly usher you to a relationship manager , that's where you have to be careful, because many banks do not encourage this type of investment, they will probably suggest you to buy their structured products for better returns. Note also that they wouldn't be able to or not willing to answer your questions regarding SGS products because its not under their bank's products. So if you survive their persuasions to buy their products, they have no choice but to issue you a form, thats where your IC comes into play. Have also you bank account no. ready, the process of creating your very own SGS account is at hand.
(Takes about 5 working days). Once your account is done up by them, they will issue you another form, which is the bid form, where you indicate which type of T-bills or bond you want to invest in? What yield you want to bid? Which Issue code? Competitive or non-competitive? Etc. So before you apply for the bid form, make sure you know what type of Bills or bonds you want, how long you want it to be, and what kind of returns you expect from etc.
Any trouble like don't know, what the hell I'm talking about, feel free to call up the nice SGS lady at Tel: (65) 6229-9150 or email them at [email protected].
Another alternative is to open an account with POEMs visit http://singapore-fixed-deposits.blogspot.com/2008/03/treasury-bills-your-alternative-to.html for more information.
What other people say about SGS
"Under the current market turmoil, there are still some safe havens for your investment monies. Besides Singapore Treasury Bills, Singapore Government Bonds are also one way to invest in relatively safe assets. The MAS’s recent auction for its 5 year Singapore Government bonds yields 2.65% per annum which is higher than even the highest fixed deposits promotions by the banks. This is one area for consideration for those risk adverse investors. Definitely safer than Structured Products such as Lehman Minibonds or DBS High Notes 5 series.
T-bills are short-term securities that mature in one year or less from their issue date. T-bills are bought and sold at a price less than their face (par) value, and when they mature, the Government will pay the holder of the T-bill an amount of S$ equivalent to the face value of the bond. Therefore, the interest earned on the T-bill is the difference between the purchase price of the security and its face (par) value. The Singapore Government issues 3-month and 12-month T-bills"- blogger"Because many people do not know about such instruments, their ignorance has caused them to lose out the ability to maximize their returns even under very safe investments"-Financial planner
"Most clients, come in every 3mths to renew la. So if you ask me , whether this product can lose $, i don't think so. Why would clients keep coming back to renew their application if they are losing money?"-Karren Tan Relationship Banker
Copied from http://secret-gems.blogspot.com/
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wow u know so much..
care to meet up?
teach me more...
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buying stocks give even better returns.
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SGS? Why not put your money in US Treasury Bill for 30 years and earn 5% annually? Lame way of investment really.
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er...can trusted or not? even dbs now...
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It is pretty dumb that sometime the MAS bonds offer a mere 2% for 10yrs ...
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Originally posted by Uncertain:
SGS? Why not put your money in US Treasury Bill for 30 years and earn 5% annually? Lame way of investment really.
Why would it be a lame way of investment?
US Treasury Bills offer 5%? per annum?
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Originally posted by gd4u:
It is pretty dumb that sometime the MAS bonds offer a mere 2% for 10yrs ...
I think TS meant 2% p.a. Better than fixed deposit i guess ...
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Originally posted by Uncertain:
SGS? Why not put your money in US Treasury Bill for 30 years and earn 5% annually? Lame way of investment really.
There's still possible currency risks...
I rather do dollar cost averaging on certain blue chip dividend stocks now than put it in the fixed D.
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I dont think those who put their money in FD are silly. Although FD interest rate is low, but if your principal is big (say $500k), the returns can still be considerable.
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There is risk investing in shares than placing the money in fixed deposit though the return is low.
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Originally posted by Fantagf:
There is risk investing in shares than placing the money in fixed deposit though the return is low.
not true.buy when the market is really down, like now.
buy only the blue chips!!!
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Originally posted by dragg:
not true.buy when the market is really down, like now.
buy only the blue chips!!!
blue chips very high price. But it is good to invest in blue chips. Now many are staying away from buying shares. -
Originally posted by dave101:
I dont think those who put their money in FD are silly. Although FD interest rate is low, but if your principal is big (say $500k), the returns can still be considerable.
1) See by percentage returns, not just amount
2) $500k can easily buy you a government bond, which gives higher percentage returns and lower risks than a fixed D
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Originally posted by eagle:
1) See by percentage returns, not just amount
2) $500k can easily buy you a government bond, which gives higher percentage returns and lower risks than a fixed D
For people who know nothing about investing, I guess FD is still a popular option since it is low risk and can be opened conveniently and easily. Also, you know how much returns you will get up front. -
Originally posted by dave101:
For people who know nothing about investing, I guess FD is still a popular option since it is low risk and can be opened conveniently and easily. Also, you know how much returns you will get up front.Govt treasury bills can also be opened easily.
You will also know how much returns you will get up front as well.
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not easy for many simple folk to understand higher yield financial instruments...
coupled with snobbish bank or banking staff, double the difficulty... -
Go bank, then bankers try to bluff you buy Lehmann Bonds
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Originally posted by eagle:
Go bank, then bankers try to bluff you buy Lehmann Bonds
Go bank, these ppl present themselves as bankers ....
now we know they are just customer relation executive/manager ... -
true govt bonds has less risk , more stable, but pretty expensive to buy. Used to work in a partial govt asset mgmt company, the senior there taking care of very big accounts for the bonds. He helped the company made lots of $$$.
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Most people are not investor type so FD is a safe way to keep alot of money and earn a gurnateed interest for them, however low it maybe.
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wall of text i can't climb over :(
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Originally posted by ^tamago^:
wall of text i can’t climb over
Essentially, what TS is trying to say is that other than the traditional fixed deposit options offered by banks, there is another alternative known as SGS securities. These securities are also known as bonds/T-bills/fixed income instruments.
They offer a higher rate of return (about 2% at time of TS's initial posting), for a lower level of risk (Governments have the ability to print money so it's assumed that they won't default on their debt).
My opinion is, it's a good investment if your are sure that interest rates are at their peaks and you will hold your investment to maturity, ie till the term of the fixed income instrument ends.
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Originally posted by dragg:
not true.buy when the market is really down, like now.
buy only the blue chips!!!
is Citibank considered a blue chip ? Many people considered it a blue chip just 1 yr ago ....
