One common complaint about CPF is its “untouchability”.
Due to its restrictions and specific uses, the savings put into the CPF can often be left untouched until one is turning 55 years old.
On the other hand, there are also a number of Singaporean who find the restriction to be beneficial. After all, the purpose of CPF is for retirement and how can one have sufficient savings should they allowed to spend as and when they like?
Additionally, CPF provides interest rate that are adjusted for inflation and is higher than your typical fixed deposit rates.
Nonetheless, you might prefer to have higher returns by taking investing into your own hands.
In this article we will walk you through how to invest using your CPF money.
CPF Interest Rates
- Ordinary Account (OA) – up to 3.5% per year, minimum 2.5%
- Special Account (SA) – up to 5% per year, minimum 4%
- Medisave Account (MA) – up to 5% per year, minimum 4%
- Retirement Account (RA) – up to 5% per year, minimum 4%
These interest rates include an extra 1% interest paid on the first $60,000 of a member’s combined balances (with up to $20,000 from the OA).
That means if your Ordinary Account has $20,000, and the other accounts have a combined $40,000 total, you earn an additional 1% interest rate.
- Ordinary Account (OA) – 3.5%
- Special Account (SA) – 5%
- Medisave Account (MA) – 5%
- Retirement Account (RA) – 6% (for those aged 55 and above)
What further makes the CPF’s interest rates more decent is that you don’t have to worry about any downside risks at all.
CPF monies are invested by the CPF Board in Special Singapore Government Securities (SSGS) issued and guaranteed by the Singapore Government.
This backing by the Singaporean Government itself makes the CPF risk-free and very reliable.
CPF Investment Scheme
Now that we have covered that, you would definitely know by now what are the rates entailed once you invest your CPF money (Ordinary Account (OA) and Special Account (SA). And to invest means to make use of the investment scheme under CPF itself.
Members of CPF are given the option to create a CPF Investment Scheme (CPFIS). This allows them to use their CPF balances to invest in a number of financial instruments. These instruments would be further discussed in the following points.
You will be able to use up to 35% of your investible savings into these instruments. The investible savings are the amount above $20,000 in your OA and $40,000 in SA.
CPF Investment Scheme Eligibility
Aside from being a working Singapore Citizen and/or Permanent Resident, you have to be at least 18 years old to avail the CPFIS. You must not be an undischarged bankrupt.
Instead, you should have enough money in your CPF Accounts.
The minimum amount required on your account would be, as stated above, are $20,000 in your OA and/or $40,000 in your Special Account.
It depends on you whether you want to invest in one or two accounts; both of which you need to have the required amount.
It does not matter what bank you choose to open your Investment Account with, since the fees and charges are the same for all of them.
Also, the banks are only there to administer the funds. You will need to have a brokerage account to actually invest the money. For this, you don’t need to be with the same bank as your chosen CPF Investment Account.
When investing your SA, banks and brokerage are not necessary.
About your investment returns, should you decide to invest, any amount gain from the investment will return back to your CPF accounts. The purpose, of course, is to encourage Singaporean to save for retirement.
On your end, if you want to invest, you should think about investing with the future in mind. Since you will likely to yield the benefit only 20 to 30 years later presuming you are a young adult.
CPF Investment Financial Instruments
We have mentioned above that you can invest your money in a variety of financial instruments. These are as follows:
You can acquire these through the following vendors such as:
- CPF Fixed Deposit Banks
- Insurance companies
- Fund management companies
It must be noted that your desired financial instruments to invest are dependent to the type of accounts you are using.
If you are investing your OA, then you will comparatively have more options than SA. They are:
- Fixed Deposits
- Singapore Government Bonds
- Treasury Bills
- Statutory Board Bonds
- Bonds Guaranteed by the Singapore Government
- Unit Trusts
- Investment-Linked Insurance Products
- Endowment Policies
- Exchange Traded Funds
These are all still subjects to certain guidelines. For investments up to 35% in your OA, you can invest in the following:
- Property Funds
- Corporate Bonds
For those up to 10%, they are:
- Gold ETFs
- Other Gold products
On the other hand, investments using Special Account are more restricted than OA. You are not allowed to invest in the following:
- High-risk financial instruments like unit trusts and investment-linked insurance products
- Gold Products
Above all of these things, you must know that the money used from your OA can only be for investments under the CPFIS-OA.
The same goes with your SA where investments done using it can only be for CPFIS-SA investments. You are not allowed to combine them for one product.
However, if you are at the Retirement Account age of 55, you can transfer funds from your OA to your SA to invest using your CPFIS-SA. This process is irreversible.
You can’t put the money back to your OA. So make sure that you have thoroughly examined your decision before doing anything.
Lastly, the total savings in the SA with the amount withdrawn under CPFIS-SA must not exceed the CPF Minimum Sum after the transfer. This sits at $161,000 as of July 2015.
Deciding on a CPF Investment Instrument
When deciding on a CPF Investment instrument/product to choose, we recommend you think of the following:
- Investment timeframe – this includes how long you plan to invest and objective
- Risk appetite – for this, you must be aware of:
○ Lower-risk investments – like fixed deposit accounts which generally yield steady but low on returns
○ Higher-risk investments – like buying stocks, the water is unpredictable. You could either gain or lose a lot of money over a short span of time
- Financial well-being – this entails you to think through your other retirement savings instead of your CPF accounts as well as your other financial commitments if you have one
Investing in One Product vs. Diversifying
As the popular saying goes, “the more choices, the more chances of winning”. This is greatly echoed by experts who usually advise investors to diversify. It is to invest your money in different products to spread out your risk.
If ever something bad happens with one product, then you can hopefully wait for the rest to not turn out like that one. This helps balance out your overall portfolio.
If you want to diversify, on way to do that is by buying into different asset classes. You must keep some money in lower-risk investments that are safer, while some at higher-risk.
You can also invest in different markets by buying into different types of the following:
- Geographic Regions
- Foreign Countries or Currencies
Keeping Tabs on Your Investments
To keep track with your investments, the best way would be to regularly check the portfolio statement your agent bank or product provider sends to you.
It also helps to have these agents or broker to be someone you can trust to help you and give advice.
If you are not sure of this, then it is better to self-learn. Keep yourself updated with the current trends of the market.
What are the ups and downs that affect your investment and how volatile are the products?
Withdrawing Investment Profits
Unfortunately, withdrawing the profits made from investments under your CPF accounts is prohibited. As with the purpose of CPF, it is to build up your retirement nest. Your profits will be left with the CPF Account.
Therefore, everything you profit can only be withdrawn if it falls under the CPF Account’s purpose.
On a positive note, your earned investment/s and dividends profits’ interests will not be taxed. You can fully get the total completely.
Losing Your CPF Money from Investments
When you find that you are losing your CPF money from your investments, then we’re here to tell you not to panic. Your losses just eat up your retirement funds. However, you don’t need to stop your CPF completely.
The money left on your CPF accounts are better left alone. You just have to let your money sit in your accounts and allow it to naturally earn their above market interest rate.
With the high interest rates offered by the CPF, you can be assured that the money you lost will slowly increase in time. But this doesn’t mean that you should continue squandering your money away. You should also learn how to save up.
At the end of the day, you will have to use your retirement funds and it would be better to actually have some money to expect.
Why the Financial Industry Encourages You to Invest Your CPF Money
If you are familiar with the world of CPF, then you must have encountered many incentives offered by the Financial Industry to get you to invest your CPF money. This begs the question, “why?”
We have always known that our CPF savings are only accessible to us; and that its interests, profits, and returns are guaranteed by the Singapore Government. This means no other financial entity or individual makes money from your decision.
The reason the financial industry does this is because they make money when you decide to invest your CPF money. This results into a tumbleweed effect once you agree to do so. It goes like this:
- Brokerage firms will generate revenue from the buying and selling of stocks that you made.
- Insurance companies will earn profits from ILPs or investment-linked insurance products or endowment plans that you buy.
- The agents from these insurance companies get their commission from selling you these plans.
- Fund managers will then earn management fees when you buy into their unit trusts.
With everything explained above, it is therefore not difficult to understand why the financial industry is so eager to have you invest your CPF money. They will do literally anything to entice you to invest with them.
Since the funds in CPF rarely gets used unless for specific purposes like retirement, most Singaporeans find investing their money as an easy option.
For them, it feels like investing money is not much compared to the cold hard cash in their bank accounts.
But the thing is, the CPF actually earns a higher return than the money they have in their banks. That is why it is important to take care of their CPF funds.
You should make sure that the decisions you made are both wise and logical. After all, your retirement fund is on the line.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.