In today’s financial landscape, leaving excess cash in a bank savings account is becoming less favorable. With some accounts offering as low as 0.05%
In today’s financial landscape, leaving excess cash in a bank savings account is becoming less favorable. With some accounts offering as low as 0.05% interest per annum, the meager returns are insufficient to outpace inflation over time. While high-yield savings accounts may promise better rates, they often come with complex requirements.
If you’re hesitant about locking your funds in Singapore Savings Bonds (SSB) for a decade or in Singapore Government Securities (SGS) bonds for terms up to 50 years, or if you’re simply looking for an alternative to fixed deposits, Treasury Bills (T-bills) might be your solution. This guide will explore T-bills, helping you determine whether they are a wise addition to your investment strategy.
How Do T-Bills Work?
T-bills are short-term Singapore Government Securities issued at a discount from their face value, providing a fixed interest rate upon maturity. With maturity periods typically ranging from six months to a year, T-bills serve three main purposes: developing the local debt markets, fostering an active secondary market for efficient risk management, and encouraging participation from both domestic and foreign investors.
T-bills are backed by the Singapore Government’s AAA credit rating, making them a low-risk investment. They can be purchased using cash, CPF, or SRS funds without any overall limit. Unlike SGS bonds that pay coupon interest, T-bills are settled in full at maturity. For example, purchasing a S$10,000 T-bill with a 3% yield means paying only S$9,850 upfront, resulting in a S$150 profit at maturity.
Are T-Bills a Good Investment?
With Singapore being one of the few countries with a AAA credit rating, T-bills are considered a safe investment, especially for conservative investors looking to diversify their portfolios during uncertain economic times. They provide short-term flexibility without locking up funds for extended periods, guaranteeing a fixed-interest return at maturity.
However, T-bills might not yield enough to keep pace with inflation over the long term, so they should complement other investments rather than serve as the sole option. The interest rates from T-bills are determined through a uniform-price auction, which means that the exact rate is not guaranteed. Additionally, selling T-bills before maturity may result in losses due to fluctuating market interest rates.
Pros and Cons of Investing in T-Bills
Pros:
Low minimum investment requirement (S$1,000)
Easy buying and selling in the secondary market
Tax-exempt interest income for individuals
Zero default risk
Helps diversify portfolios
Cons:
Relatively low returns
No coupon interest before maturity
May limit cash flow for those needing steady income
Interest rate risks
Must bid through an auction process
Current T-Bill Rates (April 2023)
Rates for T-bills as of early June 2023 can be checked on the Monetary Authority of Singapore (MAS) website.
T-Bills vs. SSB vs. SGS Bonds
Feature T-Bills Savings Bonds SGS Bonds
Available Tenor 6 months or 1 year Up to 10 years 2, 5, 10, 15, 20, 30, 50 years
Minimum Investment S$1,000 S$500 S$1,000
Buy Using SRS/CPF Yes SRS: Yes; CPF: No Auction: Yes; Syndication: No
Type of Interest No coupon Fixed coupon Fixed coupon
Secondary Market Yes No Yes
How to Buy and Sell T-Bills
Using Cash: You need a bank account with one of the three local banks (DBS/POSB, UOB, OCBC) and a Central Depository (CDP) account. T-bills can be applied for through ATMs or online banking.
Using SRS Funds: You will need an SRS account with any of the three SRS operators. Applications can be made through the bank’s internet banking portal.
Using CPFIS Funds: You must have a CPF Investment Account with one of the CPFIS agent banks. Unlike cash or SRS purchases, you will need to submit an application in person.
When purchasing T-bills, you can choose between competitive and non-competitive bids, with non-competitive bids being the simpler option for most investors.
Kick-Start Your Investment Journey
With a solid understanding of T-bills, you may want to explore other investment options to build your portfolio. For more information and tips on various investment instruments, visit our investments page.
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