The monies in your CPF Ordinary Account (OA) earn a steady interest rate that is all but guaranteed. OA funds earn a base rate of 2.5% per annum – a rate that has remained unchanged ever since its inception.
Also, you will get an additional 1% on the first S$60,000 of your combined OA and SA balance (of which S$20,000 must be from your OA), which means you can actually receive up to 3.5% on part of your OA balance.
However, if you’re looking to grow your CPF balances faster with potentially higher-returning products, you can invest your OA funds via the CPF Investment Scheme (CPFIS).
Anything beyond the first S$20,000 of your OA may be used in CPFIS, but just because you can, does that mean you should?
Is Investing Your CPF Money a Good Idea?
We all know that investing is a game of risk vs reward. Generally speaking, you need to accept higher risk in exchange for higher returns. Of course, higher risk doesn’t necessarily mean more danger or increased profits – it simply means there is greater probability of things going against you.
So, does it mean that investing your CPF funds is to risk your retirement nest egg or your ability to finance your own flat? Let’s take a look at the numbers, extracted from the latest CPFIS-OA total profits/loss report.
|Member profits||FY 2021 (Oct ‘20 to Sep ‘21)||5-year cumulative (Oct ‘16 to Sep ‘21)|
|More than 2.5% p.a.||83%||72%|
|Less than or equal to 2.5% p.a.||8%||10%|
|Members with losses||9%||18%|
There are two things to consider here. Firstly, as expected, not everyone who invests comes away with a better outcome. Some investors saw poorer returns than the CPF base rate, and others even made losses.
Yes, this means that your principal investment may not be guaranteed, depending on the type of investment you choose.
On the brighter side, things are improving. For the latest period tracked, we see a greater number of members outperforming the CPF base interest rate. There were also less members who performed on par or took losses.
The question whether to invest your CPF really boils down to this: Do you want a chance at higher returns, with a slight chance of lower or even negative return? Or do you forego that chance and stick with the virtually guaranteed return rates offered by the CPF Board?
As a secondary consideration, investing in CPFIS can help you add some portfolio diversification to your retirement holdings, owing to the range of different assets, securities and instruments on offer.
However, don’t forget that you’ll need to account for management fees and commissions, although the CPF Board has capped such charges to 0.4% per annum.
How to invest your CPF-OA?
You’ll need to open a CPFIS account with either DBS/POSB, UOB or OCBC. Once that is done, you can proceed to invest by contacting the product providers directly.
Here are the eligibility requirements to note:
- Be 18 years old and above
- Not an undischarged bankrupt
- Have more than S$20,000 in our OA
- Have more than S$40,000 in our SA
- Complete Self-Awareness Questionnaire (SAQ)
Also, do be aware that you can only invest up to 35% of your investible savings in stocks, and up to 10% in gold.
What can you invest your CPF-OA in?
Unit Trusts and ETFs
The CPFIS scheme allows selected investment funds for CPF members to invest – namely, unit trusts and ETFs. As these funds are professionally managed, this also means you’ll incur a management fee.
Unit trusts hold a variety of different assets, such as mortgages, securities and cash equivalents. Profits are distributed directly to investors, instead of being reinvested.
ETFs (exchange-traded funds) are structured and work in a similar manner to unit trusts. You can choose from different ETFs depending on sector, geographic region, market cap, and more.
Between unit trusts and ETFs, you can achieve a healthy level of diversification, provided there’s not too much overlap among the funds you choose.
Singapore Government Bonds, Treasury Bills and cash instruments
If you’re looking to balance out your portfolio with bonds and cash equivalents, know that you can also find Singapore Government Bonds (SGSB) and Treasury Bills (T-Bills) in the CPFIS.
Traditionally, such investments have comparatively lower returns, but also have the lowest risk as they are backed by the Singapore government. You may check the MAS website for prevailing interest rates on SGSB and T-Bills to ascertain an appropriate entry point.
Note that besides SGSB and T-Bills, there are also other types of bonds available. As always, do your due diligence before investing so as to avoid any nasty surprises.
A third category of investible products offered under CPFIS is insurance products. You can choose from Investment-linked Plans (ILPs), annuities and endowments that are sold by authorised private insurers in Singapore.
Annuities and endowments tend to fulfil the same function as CPF Life, so you should weigh the pros and cons of “splitting” your CPF funds this way. Also, ILPs tend to only generate a good rate of return if you hold them for a long period of time, so consider your investment timeline accordingly.
You can opt to put your CPF funds in a fixed deposit account with any of the four banks authorised for this: DBS, Maybank, OCBC and UOB.
However, you’ll need to check with them directly on the interest rate offered and other pertinent details.
Shares and Property funds (REITs)
There is a selection of company equities and property funds listed on the SGX which you can invest in using your CPF-OA funds.
These range from home-grown names like Challenger Technologies and Singtel to property funds such as Starhill REIT and Keppel REIT. Also included are a smattering of corporate bonds.
As mentioned earlier, only up to 35% of your investible balance may be used for such instruments.
Gold products and funds
Lastly, your CPF-OA can also be put into gold, such as gold certificates and physical gold, as well as gold ETFs.
You may invest up to 10% of your investible funds in this category of investments.
Should You Invest Using Your CPF-OA?
Provided you’re okay with the possibility of getting lower returns (or even making a loss), the wide variety of different assets and instruments offered under the CPFIS can be tempting.
But while your CPF-OA balance may be “locked in”, that doesn’t mean you should recklessly invest just because of the potentially higher returns. Remember that you really only benefit if your investment outperforms the CPF base rate, which may not always be the case for every investor.
As with all other investments, always consider your timeline and goals carefully before taking the plunge. And you certainly don’t have to go all in!
Looking to invest using cash instead? Read our reviews of the best online brokerages and best robo-advisors to help you decide which platform to choose.
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