Despite falling yields, T-bills have continued to stay popular in Singapore, especially in a rising interest rate environment. They are a simple, safe, and effective way to earn a decent return on your savings. This guide will cover everything from what they are to how to invest in them. 

What exactly are Singapore treasury bills (T-bills)? 

Definition: Treasury bills (T-bills) are short-term government debt securities issued by the Monetary Authority of Singapore (MAS) on behalf of the Singapore Government. That means, when you buy a T-bill, you are lending money to the government for a fixed, short period of time.

Purpose: The Singapore government issues T-bills and Singapore Government Securities bonds (SGS) as part of its borrowing program to finance public spending and government operations.

Core mechanism: T-bills are unique in that they do not pay periodic interest payments, or “coupons.” Instead, they are sold at a discount to their face value. Your profit is the difference between the discounted price you pay and the full face value you receive when the T-bill matures.

• How T-bills work in Singapore:
  
  • You apply for S$10,000 worth of 6-month T-bills.
  • The auction results in a cut-off yield of 1.90% per annum, for example.
  • You don’t pay S$10,000 upfront. Instead, you pay a discounted price of S$9,905.
  • After 6 months, the T-bill matures, and you receive the full face value of S$10,000.
  • Your profit comes out to S$95 (S$10,000 - S$9,905).

Tenure (maturity periods): T-bills are issued for two durations, with auctions held on a regular schedule found on the MAS website:

• 6-month T-bill: The most common issuance, with auctions typically held every two weeks.
• 1-year T-bill: Issued less frequently, typically every quarter.

Key advantages for Singaporean investors

T-bills offer a compelling mix of benefits, especially for risk-averse investors or for the conservative portion of a diversified portfolio.

• Unparalleled safety and capital preservation: Backed by the Singapore government, the risk of default is virtually zero, and your principal investment is secure. This safety is independently verified by all three major global credit rating agencies—Standard & Poor’s, Moody's, and Fitch—which consistently award Singapore their highest possible 'AAA' or 'Aaa' credit ratings with a stable outlook. 
• Competitive and market-driven yields: T-bill yields are determined by auction, reflecting current market interest rates. However, in recent times, these yields have dropped, falling short of the interest rates offered by standard bank fixed deposits.
• Short-term commitment and liquidity: The common 6-month tenure provides financial flexibility. Your funds are not locked up for long periods, allowing you to reassess your investment strategy or access cash every half-year.
• Tax-exempt returns: For individual investors in Singapore, any profit earned from T-bills, SGS Bonds, and Singapore Savings Bonds is exempt from income tax.
• Ability to invest with CPF-OA Funds: You can invest funds from your CPF Ordinary Account (CPF-OA). If the T-bill yield is higher than the CPF-OA's statutory interest rate (currently 2.5% p.a.), you can effectively generate higher returns on your retirement savings without taking on market risk. 

Understanding the risks and limitations of T-bills in Singapore

While extremely low-risk, T-bills are not without their limitations. It is crucial to understand these trade-offs.

• Interest rate risk (if you sell before maturity):
  
  • While you can sell a T-bill before its maturity date on the secondary market (through a bank's bond desk), its price will fluctuate.
  • Example: If you buy a T-bill with a 3.5% yield, and new T-bills are later issued at a 4.0% yield, your older, lower-yielding T-bill becomes less attractive. Its market price would fall below what you paid for it.
• Reinvestment risk:
  
  • This is the risk that when your T-bill matures, interest rates in the market may have fallen.
  • You would then have to reinvest your returned principal at a lower yield, receiving less income than before. This is a key consideration for those relying on a consistent return.
• Lack of regular cash flow:
  
  • Unlike SSBs, which pay interest every 6 months, or dividend stocks, T-bills provide no income during their tenure. Your entire principal and profit are returned in a single lump sum at maturity. This may not be suitable for investors who require a regular income stream.
• Risk of non-allotment:
  
  • Due to their popularity, T-bill auctions are often heavily oversubscribed.
  • Non-competitive bids: MAS allocates up to 40% of the total issuance to non-competitive bids. If the total value of these bids exceeds the 40% cap, the allocation is prorated. You might receive only a fraction of the amount you applied for, or in rare cases of extreme oversubscription, nothing at all.
  • Competitive bids: If you bid a minimum yield that is higher than the final "cut-off yield" of the auction, your bid will be rejected entirely, and you will receive zero T-bills.

How to buy T-bills in Singapore

This section breaks down the end-to-end process for a typical retail investor.

Prerequisites:

1. Singapore bank account: You must have a savings or current account with one of the three local agent banks: DBS/POSB, OCBC, or UOB.
2. Individual CDP account: A Central Depository (CDP) account is required to hold your securities. If you've ever bought Singapore stocks, you already have one. If not, you can open one via your bank.
3. CPF-OA investment: You need a CPF Investment Account (CPF-IA) with one of the three local banks. Note that this is separate from your main CPF-OA.

The step-by-step buying process:

Step 1: Check the MAS Issuance Calendar

• Action: Visit the official MAS SGS Issuance Calendar website.
• What to look for: Announcement date, auction date, and maturity date for upcoming T-bill issues. The application window usually closes one business day before the auction date.

Step 2: Decide your bid type 

• Non-competitive bid 
  
  • What it is: You apply without specifying a yield. You agree to accept whatever the final cut-off yield of the auction turns out to be. 
  • Benefits: It is the simplest and most direct way to invest. It eliminates the risk of guessing the yield incorrectly and getting zero allocation.
• Competitive bid 
  
  • What it is: You specify the minimum yield you are willing to accept, expressed in percentage terms up to two decimal places (e.g., 3.75%).
  • How it works: If the final cut-off yield determined by the auction is equal to or higher than your bid (e.g., final yield is 3.80%, you bid 3.75%), your application is successful, and you get the T-bill at the cut-off yield of 3.80%.

Step 3: Apply via internet banking: This is the easiest method. The exact navigation path may vary slightly by bank.

• For Cash applications:
  
  • Log in to your DBS/POSB, OCBC, or UOB iBanking portal.
  • Navigate to the 'Invest' or 'Wealth Management' section.
  • Look for "Singapore Government Securities (SGS)" or "T-bills."
  • Follow the on-screen instructions, select "Non-Competitive Bid," enter your investment amount (minimum S$1,000, in multiples of S$1,000), and choose your funding account.
• For CPF-OA fund applications:
  
  • The process is identical, but you must have a CPF Investment Account (CPF-IA) already set up. When applying, select your CPF-IA as the funding source.
• For SRS fund applications:
  
  • Similarly, select your Supplementary Retirement Scheme (SRS) account as the funding source during the application process.

Step 4: Await auction results

• Ensure your bid is in by noon on the auction day.
• Check the results on the MAS SGS Auction Results page.
• Results are typically released 2 hours after the auction.

Step 5: Post-Auction and Maturity

• If successful: The discounted amount will be debited from your bank account. The T-bill will appear in your CDP statement (for cash/SRS) or your CPF-IA statement.
• If unsuccessful/partially successful: Unused funds will be refunded to your originating bank account without interest, typically on the next business day.
• At maturity (6 or 12 months later): The full face value (your principal + profit) is automatically credited back to the bank account linked to your CDP, or directly into your CPF-IA or SRS account. The process is seamless.

T-bills vs other similar investments

‍Frequently asked questions about Singapore T-bills

1: What is the minimum and maximum amount I can invest in T-bills? The minimum investment is S$1,000. There is no specified maximum limit for cash applications, but non-competitive bids are capped at S$1 million per auction.

2: Can a foreigner buy Singapore T-bills? Yes, foreigners can buy T-bills as long as they have a bank account with one of the three local agent banks (DBS, OCBC, UOB) and a CDP account.

3: What’s the difference between a T-bill and an SGS Bond? T-bills are short-term (6 months/1 year) and issued at a discount. SGS Bonds are long-term (2 to 50 years) and pay a fixed interest coupon every 6 months.

4: What will happen to my money between the application closing and the auction result? Your bank will set aside the full application amount from your account. This means you do not earn interest on these funds during this short period (typically 2-3 business days). This is a small opportunity cost.

5: How is the T-bill yield determined? The yield is determined via a uniform-price auction. MAS first accepts all non-competitive bids. Then, it accepts competitive bids starting from the lowest yield (highest price) upwards, until the total issuance amount is filled. The highest accepted competitive yield becomes the "cut-off yield" that all successful bidders receive.

6: Is the T-bill yield guaranteed? No. The yield is only known after the auction closes. The previous auction's yield is just an indicator, not a guarantee of the next yield.

Should I be investing in T-bills in Singapore?

T-bills are not a tool for generating wealth or achieving high-growth returns. They are a strategic cash management and capital preservation instrument.

Consider T-bills for:

• Parking emergency funds (beyond what you need for immediate liquidity).
• Saving for a large, short-term goal (e.g., a house down payment in 1-2 years).
• De-risking a portion of your portfolio during times of market volatility.
• Earning a better return on your idle CPF-OA savings than the base 2.5%.

T-bills are not for:

• Investors seeking long-term, high-growth returns (equities are better suited for this).
• Individuals who need immediate, anytime access to their cash (a high-yield savings account or SSB would be more appropriate).

For the vast majority of investors, applying for the 6-month T-bill using a non-competitive bid via their local bank's iBanking portal is the most prudent way to integrate this instrument into their financial plan.

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