As yields of Singapore Savings Bonds could be easing, make sure to put CPF funds to good use


Money has been pouring into CPF accounts via top-ups in 2022 as members searched for a better return on their cash although attractive interest rates on non-CPF financial products may be eating away at that strategy.

The CPF Board said in October that CPF voluntary top-ups reached $3.5 billion for the first three quarters of 2022, $84 million higher than the amount received for the same period in 2021.

At the same time, rising interest rates have been making other financial products such as fixed deposits and Treasury bills (T-bills) relatively more attractive than top-ups. 

CPF interest rates for the Ordinary Account (OA) are at 2.5 per cent a year and 4 per cent for the Special Account (SA). CPF pays an extra 1 per cent a year interest on the first $60,000 of your combined balances, which is capped at $20,000 for the OA.

CPF members who reach 55 years old will also get 1 per cent more for the first $30,000 of their CPF balances.

These are attractive rates but are still lower than some fixed deposit rates which have been on the rise. Promotions range from UOB’s 3.55 per cent for sums below $50,000 to as much as 4.1 per cent per year for two years for amounts over $20,000 at RHB.

Yields on the Singapore Savings Bonds (SSBs) are also attractive, with recent issuances all above 3 per cent.

The view of Mr Samuel Rhee, chairman and chief investment officer of digital wealth adviser Endowus, is: “We believe that top-ups will be relatively less attractive, and something one should consider against the other options available, especially since top-ups to the MediSave Account, SA and RA cannot be reversed.

“The OA offers flexibility in that it can be used for a variety of purposes before the minimum withdrawal age, and the multitude of investing solutions under the CPF Investment Scheme is one such example.”

Still, investors should note that the rates on fixed deposits are promotional rates and the tenures are not much longer than one or two years, while CPF interest rates have remained stable. “We must not forget the effect of compounding,” noted PhillipCapital’s financial services manager Elijah Lee. “As an example, if you are a 27-year-old topping up $8,000 to your SA, this will triple to around $24,000 by the time you are 55, assuming the SA interest stays at 4 per cent.”

In any case, investors should remain alert to the possibility that these yields may now be easing.

The upcoming SSB to be issued in January is offering 2.95 per cent in the first year and an average of 3.26 per cent a year if held for 10 years.

This particular tranche needs to be held for four years to get an average return of more than 3 per cent – 3.02 per cent to be exact – a year. The previous bond was offering 3.26 per cent in the first year.

The yields on T-bills may also be edging lower. While still a decent rate, the latest six-month T-bill auction on Nov 24 gave investors a yield of 3.9 per cent per annum, slightly down from the previous one of 4 per cent. 

Mr Rhee points out that an increase in the long-term inflation rate from 1 per cent a year to 3 per cent will lead to a 46 per cent decrease in retirement savings over 30 years.

Even if yields are going up, a net differential remains. If inflation is around 6 per cent and yields of investment products are around 3 to 4 per cent, this translates to a net negative return of 2 to 3 per cent.  



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