There aren't many investments that guarantee your principal as well as returns in Singapore. Of those that do, you need to further weed out the potential scams – i.e. investments that sound too best to be true are usually too good to be true. You can refer to the MAS Investor Alert List, providing a list of unregulated persons or companies like a first layer of check.
One other thing to understand is that when you get to enjoy such safety in your investments and visibility inside your investment returns, you need to be prepared to accept a rate of return that's close to the risk-free rate.
The risk-free return describes a rate of return that you can expect to achieve even if you don't take on any risk. Theoretically, there's no such investment as there will always be some form of risk that we undertake when making an investment.
Below, we look at six kinds of investments that you can put your money into which guarantees your principal and offers a guaranteed return on investment. This can be a good way for those who are extremely risk-averse or just unsure about investing to get started.
#1 Singapore Government Treasury Bills
For us in Singapore, a good proxy for the risk-free rate can be the return that the government of Singapore, mostly of the triple-A rated economies in the world today, pays on its 6-month or 1-year treasury bills, the shortest-term government securities available.
This is really as close to the risk-free rate as you can get and also the latest issuance of 6-month T-bills in February 2021 offers an average yield of 0.2% per year, while the most recent 1-year T-bills issued in January 2021 offers a median yield of 0.31% per annum – or slightly greater than the 6-month T-bills.
Treasury bills are typically helpful for investors who are looking for very short-term investments as high as one year, without taking on any investment risk.
#2 Singapore Government Bonds
The Singapore government also issues longer-termed bonds, between 2 and 30 years. These would typically pay higher returns compared to 1-year treasury bills, as it is deemed to carry slightly more risk as it is longer-termed. It's also regarded as close to risk-free and hence provides a rate of return that is close to the risk-free rate as well.
Currently, the Singapore Government Bonds offer these rates on its newest bond issues. As you can see in the chart below, the longer the bond term, the higher the yield would be as well. Price discrepancies are usually due to the issue dates.
|Singapore Government Bond Term||Median Yield (p.a.)||Issue Date|
|2||0.28%||1 Sep 2021|
|5||0.48%||2 Nov 2021|
|10||0.88%||3 Aug 2021|
|15||1.03%||1 June 2021|
|20||1.21%||1 Oct 2021|
|30||1.3%||1 Feb 2021|
#3 Singapore Savings Bonds (SSB)
By now, you'd likely notice a recurring theme. The investments that are most likely to guarantee your capital as well as your returns are fixed income investments issued by the government.
First launched in October 2021, the SSB pays a step-up interest rate each year, up to the 10th year. What this means is that the bonds pay a lesser return in the beginning years, and when investors do not redeem the bond, it continues to pay better pay each year, until the 10th year. This is primarily to recognise the fact that investors are holding the bonds for any longer-term.
Here is the rate of each SSB issue, should you hold it for the full 10-year time period, since its inception in October 2021.
In general, the SSB offers superior liquidity, allowing investors to redeem it at any time. This usually means that the SSB should shell out similar, but slightly lower, rates of interest than other government securities that don't offer this liquidity benefit.
As depicted within the chart, the SSB interest rate yields continues to be on a doward trajectory since the start of 2021 – with the latest March issue paying a meagre 0.97% p.a. This is very close to the last 10-year Singapore Government Bond issue in August.
#4 Fixed Deposits
Although not commonly referred to as an investment, fixed deposits offer you a way to earn better returns in your money rather than leaving it inside a savings account or under your pillow. Like a reference, the three local banks in Singapore are presently offering the following Singapore-dollar fixed deposit rates.
|Bank/ Tenor||12 months p.a. (%)||24 months p.a. (%)||36 months p.a. (%)|
Of course, there are lots of other banks offering their very own fixed deposit schemes in addition to promotional rates which can be a lot better than the board rates. Many of them, including the three above, may come with certain conditions you have to fulfil to achieve the promotional rates.
In addition, deposits with all of full banks and financial institutions in Singapore are covered under the Singapore Deposit Insurance Scheme, insuring as much as $75,000 of your deposits in each account. All full banks and financial institutions in Singapore, a total of 37 are on the SDIC website, are members of the Singapore Deposit Insurance Scheme.
#5 CPF Top-Ups
To earn better interest returns, you can also consider making CPF top-ups into your Special Account (SA) through the Retirement Sum Topping-Up (RSTU) Scheme. These funds are guaranteed by the Singapore government and provide a minimum guaranteed return of 4.0% p.a. You can also make Voluntary Contributions (VC) into your Ordinary Account, Special Account and MediSave Account.
You also needs to note that the first $60,000 of the CPF monies, with up to $20,000 in your CPF Ordinary Account (OA), will earn an additional 1.0% p.a. in interest returns. This means your top-ups may earn up to 5.0% p.a. should you top-up your CPF SA in the early years.
You also are in position to receive up to $7,000 in tax reliefs when you make RSTU top-ups into your CPF SA, as well as an additional $7,000 in tax reliefs whenever you make cash-ups into a loved one's CPF SA. No tax reliefs are supplied when you make Voluntary Contributions to your CPF accounts.
However, before you do this, you need to know that unlike the above investments, which may be sold or redeemed early (notwithstanding that you may lose some value with this option), topping up your CPF SA is irreversible. You will simply receive it once you hit 65 in the form of monthly CPF LIFE payouts, instead of in cash.
#6 Savings Plans
Savings plans, provided by insurance companies, especially those that are non-participating anyway, are able to guarantee your capital as well as returns. You should also note that savings plans that guarantee your capital but don't guarantee returns also exist.
When buying a saving plans, you are typically necessary to lock your money over a fixed time period or continue contributing on the fixed period of time. Not doing this may see you losing a substantial amount of the returns you expected to receive, if you are unsure about your liquidity needs for that funds you are investing.
These plans are also covered by the Singapore Deposit Insurance Scheme in Singapore and can also offer an insurance component that pays in the event something unfortunate occurs.
Moving On To Investments With Greater Risks
Once you've built a foundation or to start your investing journey, you will have more courage to make riskier investments. Riskier, but still relatively safe, investments, for example cash management accounts provide you with a higher return for your spare cash while still providing a high degree of liquidity.
As you progress in your investing journey and realize that taking calculated risks over the long-term can be financially lucrative, stocks, properties and other alternative investments such as cryptocurrencies or perhaps wine may become investment options that can deliver significantly higher returns.
This does not mean you stop being prudent together with your investments. In fact, quite the contrary, as you need to be even more prudent when you're embarking on riskier investments. A number of these riskier investments are volatile and wish you to be able to stomach, and ride out, wild price swings at times to earn good returns over the long term.