Singapore T-Bills Guide : How to invest using Cash/SRS/CPF for Retail Investors | The Wacky Duo

 4.19% pa for 6 months!

You are probably reading this because you must have heard that the latest
Singapore T-bills for Nov 2022 will give you a return of a whopping 4.19%.

To put things into perspective, a 6-month T-bills issued in May 2022 was only
a paltry 1.56%. In just a short 6 months, it has leapt to 4.19%, a rate many
would not be expecting. The good thing is that T-bills can be invested using
Cash, SRS or CPF. With CPF interest maintaining at 2.5%, the headline rate
would not doubt perk the interest of many. 

Nov 1 2022 T Bill

However, those new to T-bills might get lost in financial jargon such as
competitive and non-competitive bidding. Let us simplify it in this post.

What are T-bills

Let’s start from the basics. 

• T-bills are financial instruments ( similar to Fix Deposit) issued by the
  Government of Singapore.
• It is rated AAA (meaning it is super safe, some say risk-free or Gold
  Standard!)
• Tenure of 6 months to 1 year. 
• Instead of Interest or coupons, the T bills are discounted. Upon maturity,
  investors will get the face value. 

In layman’s terms, it means leading money to Singapore Government and getting
extra money back. 

Example

When AND WHAT Can I invest

T bills for retail investors are available in tranches of 6 months or 1 year.
At the time of writing, 6-month T-bills are issued fortnightly, while the
1-year T-bills are issued quarterly.

For 6 months of T-bills, the 2022 schedule is as follows.

For the 1 year T-bills, there are no more allocations for 2022.

You can refer to the
full schedule here.

How big is the issue size?

Issue size varies from different tranches. It ranges from $3+ Billion for 1
year T bills and $4+ Billion for 6 months T bills. Compared to the popular
Singapore Savings Bonds ($900million for the last tranche), the size is
significantly higher.

Got Limit or Not?

The minimum investment is $$1,000. The subsequent investment will be in
multiples of $1000

There is no maximum amount an individual can hold, but there are limits for each auction. Also, you can submit up to $1 million in non-competitive bids at each
Auction.

Use what to invest?

Cash, SRS or CPF (Ordinary or Special Account) can use for investment.

How to invest using Cash?

• Bank account with one of the three local banks ( DBS/POSB, OCBC and UOB)

• Individual CDP account with Direct Crediting Services Activate. This allows
  coupon and principal payments to be credited directly into a bank account

• Apply through DBS/POSB, OCBC, and UOB ATMs or Internet Banking Portal

Things to Note

• You cannot buy T bills with a joint CDP account. However, you can edit from
  a joint account.

• Applications via banks may close 1-2 business days before the auction. Check with the individual banks for the exact cut-off time for the
  different application channels.

• The full face value will be deducted upon application day. The difference in
  the final discount price will be refunded on the day of the auction. The
  balance will be retained for the T-bills. This means you would have lost a
  few days of interest as the issue date is usually T- 3 Days. Likewise,
  crediting of funds upon maturity is at T+3 for auction.

How to invest using SRS?

• You will need an SRS account with one of the three SRS operators (DBS/POSB,
  OCBC and UOB)

• Apply via the bank’s internet banking portal.

How to invest using CPF?

CPFIS-OA Application 

• You need a CPF Investment Account with one of the three CPFIS  agent
  banks (DBS/POSB, OCBC and UOB)
• The application would be made in person at any branch of the CPFIS-OA agent
  bank. 

CPFIS-SA

• No need to open CPF Investment Account if you wish to invest CPFIS-SA funds

Things to Note

• For first-time applicants to CPFIS-OA, you must be age 18 and above and complete a Self-Awareness questionnaire. Due to current overwhelming requests, it may take weeks or months for CPF-OA to be active.

• You cannot fully use the OA and SA savings. For OA, you can invest after
  setting aside $20,000 in your OA. For SA, you would need to set aside
  $40,000

• For CPF funds, unlike Cash investments, only the amount AFTER the discount
  is deducted from CPF. The deduction is usually T-2 days. The crediting is at
  T+3 days.

• For the month where CPF is deducted, there will be no interest for that
  month from CPF regardless of when it is deducted. Depending on the debit and
  credit dates, you may lose one or two months of interest.

         Based on a 2 months lag,  a
6-month  T-bills would need to be at least 3.33% to break even.
 
       1-year T bills will need 2.92% to break even. This
is for CPF OA.  
         CPF SA would
require a much higher BE 

• You need to manually credit the funds back to CPF via the CPFIS bank
  Internet Portal, else the funds will remain in the bank’s account. This may
  further impact the loss of interest from CPF

Competitive Bids vs Non-Competitive Bids

You can opt for competitive or non-competitive rates during the application
process. 

Here are the advantages and disadvantages of Non-Competitive vs Competitive
bids

How to predict the interest rates?

While we do not have a crystal ball, we think the 12 weeks MAS bills ( only available to institutions) would be the closest gauge. Do note that interest rates will only be determined on auction day.

You can check the MAS bills rates here 

How to calculate returns?

Use this formula to calculate returns.

(100 – Discounted Price) x 365 / No of days held = Interest rates.

Round it down to the last 2 decimal points.

Would I get the full allocation?

It would depend on a few factors. Are you bidding on non-competitive or competitive terms (see above). Additionally, for non-competitive, it would be dependent if the allocated % of the tranch has been oversubscribed. If it is oversubscribed, your allocation for non-competitive bids will be pro-rated.

How to check for allocation?

• For cash applications, some banks will send SMS. Others will credit your bank account with a discounted refund. You can also check CDP statement after the issue date.

• For the SRS application, you can check the statements from the SRS operator.

• For the CPFIS-OA application, you can check the CPFIS statement sent by agent banks or online. You can also check your CPF account for the deduction.

• For CPFIS-SA, you can check your CPF statement after the issue date.

Note that you will see the T-bills in quantity, not net value. 10 T-bills is the equivalent of $1,000

What happens upon maturity?

Cash and SRS will be credited back to the respective bank’s account. For CPFIS-OA, it will be credited back to CPF-IS OA account with the bank. You would need to request to transfer back to CPF manually. 

How to sell before maturity?

There is no early redemption for t-bills, but you can opt to sell on the secondary market at DBS, OCBC or UOB main branches. It is best to hold them to maturity as prices may fall before maturity, and with low trading volume for T-bills, they are rather illiquid. 

Any Risk for T bills?

As with any financial instruments, T- bills do come with their own risk. One of them would be early redemption. Another will be re-investment risks, given its relative short-term and interest rate volatility.

Nonetheless, T-bills are considered low risk is given that it is backed by Singapore Government, a AAA credit-rating country.

Any Charges?

Some banks would charge a fee for each application request. Do check with respective banks on the charges.

Should I invest in T bills?

T-bills will be one of the best options if you want a short-term, low-risk financial product to park your funds. In some circumstances, the returns could be higher than fixed deposits. With rising inflation, T-bills provide a possible hedge.

Nonetheless, consider alternatives like Fix Deposit, Singapore Savings Bonds
or longer-dated SGS Bonds. All these instruments differ in tenure, redemption
and opportunity costs. Choose one that best fits your needs.

Disclaimer
The information provided by TWD serves is for educational purposes. It is
not meant to be personalised investment advice. Readers must do their due
diligence and refer to financial advisors for their investment needs. The
information is correct as of 28 Oct.