A new government bond on the way offers investors two unusual benefits - steadily rising interest rates and the ability to cash out early without penalty.
Normally, bonds have a fixed interest rate and investors can find themselves out of pocket if they redeem them early and the market price is less than their initial price.
The new product - the Singapore Savings Bonds - is taking a different approach.
Its interest rate will be linked to the long-term Singapore Government Securities (SGS) rates. But unlike SGS bonds, which pay the same interest rates every year, the new product will start with smaller interest rates that will keep rising the longer you hold on to the bond.
The bond will have a term of 10 years. This means if you hold on to it for the full 10 years, you will earn the same amount that the 10-year SGS would have paid. But if you cash out early, your returns will be lower. Still, there will be no penalty, and investors will receive their initial outlay with the accrued interest.
The 10-year SGS has mostly yielded between 2 per cent and 3 per cent over the past 10 years.
The new bonds, which will be issued monthly, likely starting in the second half of the year, aim to provide a long-term, low-cost savings option that offers safe returns, said the Monetary Authority of Singapore yesterday.
They are targeted at retail investors with a minimum investment of just $500, with additional multiples of $500 up to a cap to be announced later.
The bonds cannot be traded on the open market.
Securities Investors Association of Singapore chief executive and president David Gerald said the bonds "provide Singaporeans with a government-guaranteed savings product that has a return that is above the inflation rate and which is also capital guaranteed".
Experts added that fixed deposits are for shorter terms - one year, for example - compared with bonds. Mr Jeremy Soo, head of DBS Bank's Singapore consumer banking group, said would-be bond investors who have been deterred by the traditionally high minimum investment amount - $250,000 in many cases - may find the Singapore Savings Bonds to be "an ideal addition to their investment portfolio".
This article was first published on March 31, 2015.
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