Author Topic: Bond over fixed deposit?  (Read 509 times)

neonlight

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Bond over fixed deposit?
« on: March 16, 2019, 06:45:44 AM »
Hi,

Please bear with me if this sound too basic.

Why is it better to invest in bond than a fixed deposit? I looked at the USD interest rates which is offered in Singapore and it is giving 3.05% per annum in some banks, while not fail proof banks in Singapore is usually well regulated.

I am totally new in bond so my question is should I put my money into bonds or fixed deposit which guarantee a USD interest payout of 3.05%?

Thanks
« Last Edit: March 16, 2019, 10:10:29 PM by neonlight »

MustacheAndaHalf

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Re: Bond over TD?
« Reply #1 on: March 16, 2019, 10:31:28 AM »
Does "TD" stand for something like "Treasury Deposit" or "Trusted Deposit"? 
I'm not familiar with the term, and I haven't seen that in the U.S.

I personally prefer bond funds.  Each bond has a contract explaining it's terms, and I'd rather not deal with that.  In a bond fund, the manager reads the fine print and makes decisions on which bonds to buy.

neonlight

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Re: Bond over TD?
« Reply #2 on: March 16, 2019, 10:11:58 PM »
Does "TD" stand for something like "Treasury Deposit" or "Trusted Deposit"? 
I'm not familiar with the term, and I haven't seen that in the U.S.

I personally prefer bond funds.  Each bond has a contract explaining it's terms, and I'd rather not deal with that.  In a bond fund, the manager reads the fine print and makes decisions on which bonds to buy.

Ive changed TD (time deposits) to FD (fixed deposit) for easier understanding

MustacheAndaHalf

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Re: Bond over fixed deposit?
« Reply #3 on: March 17, 2019, 12:14:44 AM »
Ah, in the U.S. that's a "certificate of deposit" (CD).  You might earn 2.75% for 1 year or 3.10% for 5 years.

There's many types of bonds... U.S. Treasuries backed by the U.S. government (considered the safest investment in the world), investment grade corporate bonds, "high yield" (junk) bonds, and even bonds backed by mortgages.  The most common for investing is probably a "total bond market" fund that combines all of them.  An example would be Vanguard Total Bond Market ETF (BND) which has an SEC yield of 3.13%.

If you favor access to the money, then a bond fund provides that better.  But you can lose some money when interest rates go up, and people need a discount before they'll purchase older bonds (since they have a lower yield).  If that's a concern, you could go with short-term bond funds, where they have the smallest impact to interest rate changes (but also pay the smallest amount of yield).