Step-up interest

Savings Bonds offer you a return that depends on how long you hold them for. You receive less interest at the start, but the interest “steps up” or increases over time so that the longer you invest in Savings Bonds, the higher your effective return.

At the beginning of each month, MAS will announce the interest rates for the entire 10-year term of that Savings Bond issue. These interest rates will be locked-in when you subscribe.

Government bond returns

The interest rates of each Savings Bond issue are based on the average Singapore Government Securities (SGS) yields the month before applications for that issue open, and may be adjusted to maintain the “step-up” feature if market conditions do not allow it. Click here for a technical explanation of how Savings Bonds interest rates are determined.

If you hold your Savings Bond for the full 10 years, your return will match the average 10-year SGS yield the month before your investment. In the last 10 years, the 10-year SGS yield has been between 2% to 3% most of the time.

If you decide to redeem your Savings Bond early, you will receive a lower return. In general, an investor who holds a Savings Bond for a given number of years would receive an average return similar to that of an SGS of the same tenor.

How it works

Let’s say you applied for $1,000 of Savings Bonds in July 2015, which pays interest based on June 2015 SGS rates. (Figures are for illustrative purposes only.)

Step-up interest illustration

In the 1st year, you will earn $9 of interest, for a return of 0.9% over your 1 year investment period.

In the 2nd year, you will receive $15 of interest. On average over 2 years, you would have earned a return of about 1.2% per year.

The interest you earn will step up over time. In the 10th year, you will receive $33 of interest. Based on the interest received from the 1st year to the 10th year, your effective return would be 2.4% per year, which is also the average 10-year SGS yield in June 2015.

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