Dear readers,
I am sure all of you have heard about the raising rates, especially your mortgage rates. Home loan rates in Singapore have gone past 3 per cent to a new high with the latest move by UOB. The previous high in recent times was 2.88 per cent in mid-2019.
I have seen Singaporeans getting panicky and calling their mortgage brokers to refinance or reprice their mortgage packages to see if they can lock in at lower rates.
But on the other hand, Singaporeans have not been actively pursuing higher return for their savings accounts. Below is the July’s fixed deposit rates offered by the banks here in Singapore.
As we can see from the above table, the highest rates offered is 2% by CIMB for a tenure of 12 months and the rest are pathetic. But its for obvious reasons as this will affect the NIM (Net Interest Margin) of the banks which in turn will affect the banks’ profitability.
There are insurance companies which are offering products that yield around 1.82% per annum with a tenure of 3 years now as well. How are they making a profit selling these products, you may ask. Insurance companies buy into bonds and obviously these bonds are paying them higher than 1.82% and that why they can sell these products at a profit.
Assuming that I am the insurance company, I would be more than happy to sell the 1.82% product. Why? Because my cost of funds is 1.82% (how much I pay to my customers if they buy my plans) and my return is 2.5% and above (making a profit margin of around 0.68% per year). My risk is literally zero as the credit rating of Singapore Government is AAA and what is the probability of them defaulting? I don’t even have to fork out capital as the capital comes from the customers. In a nutshell, its free money for me!
Why not we skip the banks and insurance companies and go direct? Just by simply doing what they are doing with their funds gotten from consumers. What are the pricing of these bonds you may ask, so let us take a look at the pricing today.
The above is showing the pricing of the Singapore Government Bonds (AAA credit rated) and we can see that the one-year tenure bond maturing 1st of July 2023 is yielding 2.52% and the two-year tenure bond is yielding 2.575%!!!
By the way, I’m not talking about the Singapore Savings Bonds. What I am sharing is plain vanilla Singapore Government issued bonds. Holders can choose to buy and sell as and when they want and the yield is fixed based on the purchase price and holding them out to maturity. Singapore Savings bonds’ return is highly dependable on the number of years that you will be holding them. The longer you hold the higher the return. the initial few years return are not that great.
As for what I am sharing, the yield per annum to maturity is fixed right the moment you purchase.
I am writing this to empower my readers by sharing this with them. Most of them are rushing to fixed their mortgage rates at a lower interests but not many are rushing to lock in higher return for their savings.
The minimum amount to participate is S$1,000. Usually the minimum size for bonds is S$250,000. Why the banks are not recommending this? I guess it’s a business decision since revenue on a S$250,000 is definitely much higher than what S$1,000 can bring. If you turn up at the bank giving them a $1,000 budget, they will most probably push you towards insurance products (more lucrative for them mah).
So wait no further, take action today and lock in those rates! Based on my 25 years of market experience, this kind of opportunity don’t come by very often. The last time something similar took place was back then in 2018.
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