I use the Singapore Savings Bonds as my emergency fund

The Emergency Fund

Why do we need an emergency fund? Isn't it just idle cash that is not put to good use? I disagree. The emergency fund can have returns from a range of 0% to 24.9%. Why do I say so?

Without an emergency fund, I may not have money when I need it the most. For instance, I may need to pay off medical fees and it isn't covered by my insurance. In this instance, I might have to borrow money.

You might be lucky to have friends or family willing to help, but if you do, you might have to borrow from the bank. Using a credit card for payment can lead to interest rates of 24.9% a year. This includes late payment fees, and rollover charges.

Returns of 24.9% from the emergency fund

When you need money, and you have it, you can avoid paying such an absurd amount of money. Managing one's finances is about both offence and defence. Avoiding a 24.9% debt has the same value as making an investment of the same return.

In other words, having an emergency fund gives you a return of 24.9%. Even if you have times where you don't need the money, and the cash is just sitting there, the absurd cost of 24.9% more than makes up for this opportunity cost.

Minimising the opportunity cost of holding cash

Cash is a liability. Any amount not being put into income generating asset is a liability, and cash is no difference. The money can be put into investments that can give us 7% returns in a year, but with cash, it gives us little or no return.

So, we have to minimise the opportunity cost of holding cash. In this aspect, I use the Singapore Savings Bonds as my emergency fund.

The Singapore Savings Bonds

The Singapore Savings Bonds is like a hybrid between a bond and a savings account. Having the dual properties of both, the SSB pays out coupons every year, without having to pay any penalties if you were to redeem the bonds early.

You can also compare it to a fixed deposit, with better rates, and no lock-in period. Here are some features of the Singapore Savings Bonds, taken from their government website.

  • Risk. The SSB is fully backed by the Singapore government. This is a AAA rating, which is the best rating given, and absolutely rare.
  • Returns. The returns vary depending on how long you hold the SSB for. It increases the longer you hold it, from 0.9% if you redeem it in the first year, to around 2 - 3% if you held it till maturity in 10 years. The rates depend on the Singapore Government Securities yield.

How to apply?

There are two steps in applying.

In the first step, you have to get ready two things. One is a bank account with any local bank in Singapore, namely DBS, OCBC, and UOB. Two is an individual CDP Securities account linked to your bank account

To get an individual CDP Securities account, go to the CDP's webpage, and download the form. Fill it up, and mail it to CDP with your particulars. Once you have your CDP account, login to iBanking, and simply link the CDP to your bank account. For DBS, it is under Electronic Payment for Shares.

The second step is to apply. You can simply login to your iBanking, and apply. There should be a separate tab just for the Singapore Savings Bonds. Do note that there will be a $2 non-refundable transaction fee, that is levied irrespective of your investment amount.

Every 6 months, you will receive some interest from the bonds. Should you need to redeem it, simply go to the same tab in iBanking, and click on redeem.


The Singapore Savings Bonds provides the liquidity that an emergency fund requires. When you have the need for cash, you simply redeem the bonds, and you will receive the initial capital back along with the interest that will be pro-rated according.

Many financial instruments sacrifice returns for liquidity. For such a liquid instrument, the returns should be close to 0%. However, the Singapore Savings Bonds provide a better rate of return than some of the fixed deposits.

I talk more about emergency funds, including how much one should set aside based on the nature of his or her job, in my upcoming book on how everyone can be financially free. If you want to be the first to know when my book is publish, simply subscribe to my mailing list. You will also get a free report on: how to beat 80% of investors even if you have no time to invest. 
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