The low-down on POSB's new Save as You Serve programme for NSFs

I know of at least one relative who has passionately vowed to ensure her son never does NS. I know she's passionate because she's been talking about it since she found out it was a boy. 20 years ago. Yes, we're all quite excited to see what happens when he tio the saman letter from CMPB anytime now.

But maybe my relative shouldn't need to worry. Yesterday, POSB announced a new Save As You Serve programme, one that is supposed to encourage full-time National Servicemen, better known as NSFs, to start saving with POSB as soon as they enlist. And to sweeten the deal, POSB is offering interest rates of an extra 2 per cent per year on your monthly savings.

Wah! An extra 2 per cent interest per year is a lot! Quick, tell me how to get it.

Obviously you have to be a NSF first. It doesn't matter which vocation you're in - other than the Army, Navy, Air Force, Police and Civil Defence NSFs are all eligible. Also, you have to make sure your NS allowance is going into a DBS or POSB savings account.

Then, you have to open a separate POSB Save As You Earn account. This is the account that you will contribute to monthly. For regular Singaporeans, this POSB Save As You Earn account (or SAYE) usually earns a pretty pathetic 0.05 per cent interest per year (you can earn up to 0.25 per cent interest per year if your monthly savings amount is higher). Just how pathetic is that? Let's see - if you put in $100 regularly into the SAYE account each month, after 2 years you will have saved $2,400. Your interest after 2 long years? $1.25. Even a single MRT ride can cost more than that these days.

But for NSFs, now you get an additional 2 per cent interest per year in your SAYE account, on top of the normal 0.05 per cent rate. This means, if you save $100 each month, you will enjoy a total of $51.80 after 2 years. That's more than half your monthly contribution!

You can change the amount you save anytime you want, but the monthly amount can only be between $50 and $3,000 each month.

Is there a catch? What's to stop me from just dumping in all my piggy bank savings to enjoy the extra 2 per cent interest?

Other than the fact that you can only contribute a maximum of $3,000 each month, and that you can't withdraw from your SAYE account without forfeiting all your interest? Nothing's stopping you from putting in as much money as you can to enjoy the high interest rate.

Plus, you can change the monthly contribution amount as often as you want, so don't feel like you're forced to commit the same amount each month.

That said, the extra 2 per cent interest per year is only valid as long as your NS allowance is being credited into the DBS or POSB savings account that the SAYE account draws from. That means, once you stop getting your NS allowance, you will stop earning the extra interest. So if you defer your NS, or serve less than 2 years, you'll only enjoy the extra 2 per cent interest for the time you spent serving your country.

But just in case you think that extending your NS obligation will help you earn more money, this extra 2 per cent interest per year is capped at 2 years.

Okay, let's be practical here, just how much should I, an NSF, be saving each month with POSB?

If I had my way, I'd say you should put up to 90 per cent of your entire NS allowance with POSB! At the risk of sounding like an old fart, It's insane just how much NSFs are getting in their monthly NS allowance these days. Recruits (or trainees, if you're with the Police) are now getting $560 each month!

Whatever do you need so much for? You spend at least 5 days each week in camp, with your meals all provided for. If your sergeant doesn't like your face, then you spend all 7 days in camp, with your meals taken care of. You'll never get a chance to spend that money! So unless you need that money to start some illegal gambling operation in camp (the golden rule: do whatever you want, just don't get caught) you're probably better off putting as much as $500 of that allowance into your POSB SAYE account.

Assuming you save $500 a month from the time you enlist, till the day you ORD 2 years later, let's look at how much you'll earn in interest. After 24 months, you would've saved $12,000! Because you save $500 each month, your POSB SAYE interest rate is 0.20 per cent per year. And since you're an NSF, you'll get 2 per cent interest per year on top of that. So at a 2.20 per cent interest rate per year, that's about $275 you can earn in interest after 2 years.

Of course, this assumes you don't withdraw from this SAYE account for the two years of service, otherwise you'll forfeit all your interest earned.

So how do I maximise my benefits if I'm going into NS?

You should apply for the SAYE account within the month when your first NS allowance is credited into your account. That way you'll enjoy the full 2 years of extra interest. If you're already serving NS, you should still apply for the SAYE account as soon as possible, but remember that the extra interest is only credited while you're still getting NS allowance.

If you've already ORDed? Don't worry, you can still enjoy more than 2 per cent interest with these savings accounts.

This article first appeared on MoneySmart.

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