Question: Can I just put my money in high interest savings account rather than buying bonds?
Answer:
The advantage of these high interest saving account is that the minimum entry amount is very low. Anyone can afford this kind of saving account.
When comparing with bonds, I assumed this person is asking for direct bonds. Direct bonds minimum entry level is typically USD $200,000 or SGD$250,000. Although direct bonds tend to have a higher rate of return, its disadvantage is high entry level.
There are also other direct bonds which its entry level is low. I am referring to Singapore Savings bonds. However, based on last month’s results, the maximum amount that you can subscribe to was at most $15,000 due to oversubscription.
However, when you buy bonds, you have to be mindful of credit risk. Credit risk means that the issuer of the bonds may default or go bankrupt.
If it’s a government bonds, this is not an issue. However, if it’s a corporate bond, you have to be careful. You do want to sink in $250K into a company
In addition, bonds that have a very high yield are what we called “junk bond” that means they have a high chance of default (i.e. go bankrupt).
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