Thursday, August 6, 2015

SSB vs GE 2% Guaranteed Saver

After reading this post by Dollars and Sense, plus seeing a flood of recommendations and also infographics like this being shared around on my newsfeed, I decided to talk about this.


Let me be very clear and upfront. I do not fancy insurance and insurance agents. That's just my personal bias. I have to talk about insurance even if I don't like it, because insurance is part and parcel of life.

In all honesty, this GE promo actually looks quite pretty decent, as far as an "insurance" product is concerned. However, this isn't insurance in any shape or form, which is why it pisses me off that they EXPLICITLY STATE Guaranteed issuance with no medical underwriting on their product info webpage.

If I'm selling chicken rice, do I need to add that "All customers are guaranteed issue with no medical underwriting"? Absolutely ridiculously. I hate it when "insurance" products are dressed up and presented in such a way.

Anyway, shoutout again to D&S for writing about this and doing the real work comparing the pros and cons in their article, but I'll do a simple recap.


Default risk is a no brainer. MAS won't default. Great Eastern, as slim as that probability is, could default. You take a risk (admittedly, a small one) with GE.

Returns for the GE promo is 2%, nice and easy number. The SSB is a moving target and based on this reference table from FSM, we are looking at yields between 1.94 and 1.98% as of now. Of course the finalized yield will only be known when the bond is issued and it could definitely be higher than 2%. But for now, it is under 2%.

Minimum outlay required for the GE promo is a whooping $20,000. Do you have that kind of cold hard cash to drop? With just $500 and in $500 increments, you can invest in the SSB. This is a big factor.

Early redemption for these kind of saving "insurance" plans are of course, usually not possible, or possible with a "surrender value" which might actually eat into your capital to redeem. The SSB can be redeemed the following month and it will retain its capital value as well as any interest earned between the semi-annual payouts. Partial redemption is also possible. This is the most important factor in my opinion, as you can put in money that is not only specifically meant for use after 5 years. If you want to redeem some amounts in case of an emergency or an unforeseen expense, it is possible to do so conveniently and without penalty.

Summary

By losing out on 0.05%  of returns, you will remove default risk, allow the minimum capital outlay to be as low as $500 and add the option to redeem your capital in a month's notice with no penalty.

In a month's time when the bonds are issued, the 5 year returns could have moved up by then and perhaps be even offering more than the 2% from Great Eastern!

The biggest and least talked about comparison flaw is that you don't need to redeem your SSB after 5 years if you don't want to. After 5 years if you realize you don't particularly need the money for anything, you can keep it for up to another 5 years and immediately have a product that earns 2% and increases every year.

The main drawback of the SSB? The $100,000 limit. But seriously, that's a 1st world problem right there.

Investors need to clearly understand the differences between products like Fixed Deposits, the SSB and "insurance" savings products like this GE promo before they have over thousands of dollars of their hard earned money. Marketing gimmicks to juice up returns are very common and it is basically industry accepted practice nowadays. (See this example for OCBC's Bonus+ Savings account)

I have to admit, the people I know working for Great Eastern are pretty good guys. I know that they are smart for sure. I recently found out that a girl I had a major crush on back when I was 16 has become an agent. This current savings "product" is probably one of the best that I've seen that has clawed out from the insurance world.

But is this product really good? Objectively and relatively to other options?

Without a doubt, I would buy the Singapore Savings Bond instead.

Of course, if I had $20,000 and my insurance agent is my old crush, that would be a whole different story.

11 comments:

  1. Hi GMGH,

    I was invited to some MAS session half a year ago and my feedback to them was that the SSBs were likely to have little impact since I only expected a max sum of $50,000 and most likely in the range of $20,000.

    And then an MAS asked me "So are you going to buy the SSBs?".

    Without batting an eyelid, I told her I will max it out.

    After realising the limit is a cool $100,000, with hindsight, I can understand why she raised her eyebrows.

    How wrong I was about the impact of SSBs...

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    Replies
    1. Hi Mr 15HWW,

      Yeah I was pretty taken aback by the $100,000 upper limit as well! At least it is a good option, especially for older people and more risk-adverse people. I know people my age that only do fixed deposits, so this is actually a product that interests them, especially because of the flexibility to withdraw.

      I think other than a token sum to familiarize myself with this product, I don't foresee myself using it at this stage of my life. How about you?

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    2. Hi GMGH,

      Although I definitely would not be maximising the limit, I am thinking of having 10% of my investable assets in it. Somewhere in the region of $20k to $20k.

      My situation is quite different from yours. As I become a freelancer, I need more stability? And these bonds are a good way to diversify from cash and stocks.

      Delete
    3. Hi Mr 15HWW,

      Yeah, we all have different situations which is why it is best if we understand the range of investment options available to us and pick the best suit for our individual situation. I think that sounds like a good plan for you! :)

      Delete
  2. Your summary was aptly written! Great way of comparing. And I have to say, I'm loving your ending paragraph :p

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    Replies
    1. Haha, thanks BB! Do you have any plans on subscribing for some SSBs?

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  3. Uh there's no compounding, your total interest for GE should be $2k

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    Replies
    1. Hey Anon,

      I did not come up with that infographic, that was created by a GE agent which was being shared on FB.

      However, from my understanding, the 2% paid out ($400) can be re-invested with them and the rate that they are using is 3%, non-guaranteed.

      A major flaw in the comparison table is that only the GE Promo is taking into consideration that the returns are reinvested, which is of course one of the reasons why their returns seem higher than the others.

      Like I mentioned, you need to look at how these people present their returns in their "marketing". It is meant to be tricky and paint their product as the best one.

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    2. Tricksy agentses...


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  4. very nice update in this blog this type of update required daily with the Singapore stock recommendations and market trend s etc.

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  5. Hey, I can’t just believe these, it worked at long last, and God is always great. There are always incredible challenges when it comes to paying medical bills using a personal medical insurance policy. Most insurance has attendance of taking their clients round and round for no apparent reason, but thanks to dynamic insurance because sometimes it works. Oh! Never forget about prayers!

    Steven Keltsch @ Allied Insurance Managers, Inc.

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