One of the biggest complaints that Singaporeans have about their CPF savings is that we never actually see the money we’ve saved. Then there’s the other complaint – that the interest rates of the CPF accounts are too low to combat inflation. This is where the CPF Investment Scheme (CPFIS) comes in to save the day.
Wait a minute, don’t I already get interest on my CPF?
Yes, you do. While the returns aren’t insanely high, they’re still a lot better than leaving your cash in a bank account. And the interest is risk-free!
Here are the current interest rates on CPF accounts:
|Account name||Annual interest rate||Bonus interest|
|Ordinary Account (OA)||2.5%||+1% on first $60,000 (capped at $20,000 for OA)
+1% on first $30,000 for 55 years old and up (capped at $20,000 for OA)
|Special Account (SA)||4%|
(Since CPFIS directly relates to OA and SA, we’ll talk a little more about these 2 accounts.)
Obviously, the interest rate for SA is a lot more attractive than that of OA. So one way to get better returns from your CPF is simply to move your OA funds to your SA.
The problem is, this is a one-way street – you can’t transfer your SA funds back into your OA where you can spend it on housing or education. It’s just going to get locked up there until retirement. That’s why CPFIS is so attractive. You can get better returns than 2.5% on your OA savings without locking it up.
All that said, it’s wise to bear these interest rates in mind when you think about investing your CPF funds. It’s perfectly possible for investors to get less returns than the 2.5% OA interest rate!
If you are unaware of the risks and costs of investing your funds, it’s probably wiser to let sleeping dogs lie and leave your money where it is. Or maybe consider moving some excess OA funds (that you definitely won’t need for education/housing) to your SA.
Who is eligible for the CPF Investment Scheme?
If you’re interested in CPFIS, there are a few requirements you need to meet (apart from having a CPF account, duh):
|Age||18 years old|
|Legal status||Not undischarged bankrupt|
|CPF (OA) balance||$20,000 (for CPFIS-OA)|
|CPF (SA) balance||$40,000 (for CPFIS-SA)|
There are two different requirements for the CPF account balance because there are actually two CPF investment schemes, one for OA and one for SA.
Broadly speaking, using your OA savings to invest under CPFIS-OA will give you more investment product options to choose from, including shares, gold and higher-risk ETFs and unit trusts.
These investments aren’t allowed under CPFIS-SA. (It’s also harder to beat the 4% interest rate on your SA, remember.)
What do you need to know before using your CPFIS?
The most important thing to remember about CPFIS is that any returns you get will go back to your CPF accounts. That means you should ideally be investing with the future in mind.
You don’t want to risk squandering all your available CPF funds on a risky product if you’re still not going to be able to enjoy the fruits of your investments for another 20 to 30 years. That being said, CPF has already shortlisted investment products that are less volatile, which is good given Singaporeans’ penchant for.. um.. “risk-taking” (we mean gambling).
What can I use my CPF to invest in?
I know what you’re thinking. But no, unfortunately you can’t just withdraw your funds and go berserk with the latest cryptocurrency.
You can only invest in very specific products, the full details of which (down to the specific product names) are helpfully provided on the CPF website – see this complete list of CPFIS investments.
In summary, here’s a table of products ranked from lowest to highest risk (and therefore, least to most restricted):
|Type of investment||CPFIS-OA||CPFIS-SA|
|Singapore Government Bonds||Yes||Yes|
|ETFs||Yes||Yes but not the higher-risk ones|
|Unit trusts||Yes||Yes but not the higher-risk ones|
|Investment-linked insurance products||Yes||Yes but not the higher-risk ones|
|Fund management accounts||Yes||No|
|Shares||Up to 35% of investible savings||No|
|Property funds||Up to 35% of investible savings||No|
|Gold ETFs||Up to 10% of investible savings||No|
|Other gold products||Up to 10% of investible savings||No|
Note: “Investible savings” refers to your account balance + whatever you’ve withdrawn for housing and education.
For example, if you’ve withdrawn $30,000 for housing and you now have $70,000 in your OA, your investible savings are $70,000 + $30,000 = $100,000. That means you can invest up to $35,000 (35%) in shares and property funds, and up to $10,000 (10%) in gold.
What are the potential returns of CPFIS investments?
This isn’t an easy question to answer, of course, because of the range of products available. For example, bonds tend to be lower risk, lower returns, while unit trusts are generally higher risk, higher returns.
Ideally, you’d want your investments to at least earn more than the risk-free interest rates of the CPF Ordinary Account (2.5%) and Special Account (4%).
Sounds doable, yes? But it’s not that easy in practice.
Because almost every investment involves some kind of extra cost – ranging from the $2 bank charge you pay for a Singapore Savings Bond to heftier investment brokerage fees – you need to make sure your returns earn enough to pay for those as well. Otherwise, these costs basically erode your returns.
In fact, these pitfalls (in tandem with some irresponsible financial advisers’ aggressive sales tactics) have left some Singaporeans worse off than if they had never touched the money in the first place!
… But the Gahmen will help us, right?
Of course lah. This is Singapore.
The Government has already recognised that, left to our own devices, Singaporeans might fall prey to poor investment decisions under CPFIS.
This is partly because of a conflict of interest between Singaporeans and our financial advisers (FAs). Currently, FAs can earn up to 3% in commission fees when they successfully talk you into plunging your CPF savings into a unit trust or investment-linked insurance policy. Plus there’s usually a “wrap fee” (i.e. admin charge) of up to 1% on your entire investment.
Put bluntly, a financial adviser might feel incentivised to sell you a crap investment product.
From 2018 onwards, there will be gradual reductions of both fees to discourage FAs from irresponsible selling, and to lower the costs of investment for all CPF investors.
|Max. sales commission||Max. wrap (admin) fee|
|From 1 Oct 2018||1.5%||0.7%|
|From 1 Oct 2019||None||0.4%|
If these fees are a concern to you (as they should be) it may be wise to hold off on any impulsive investment decisions until next year.
Oh, if you open a CPFIS account from 1 Oct 2018 onwards, you’ll also have to fill in a newly-introduced Self-Awareness Questionnaire. It’s supposed to test your basic financial knowledge and understanding of how investments work.
The idea is that people who know nothing should be made aware of their ignorance before they make any foolish decisions with their CPF savings.
How do I apply to invest my CPF savings via CPFIS?
It’s easy to get started with CPFIS, but note that there are slightly different procedures for CPFIS-OA and CPFIS-SA:
|Type of CPFIS||Procedure|
|CPFIS-OA (Ordinary Account)||Open a CPF Investment Account with DBS, OCBC or UOB|
|CPFIS-SA (Special Account)||No need to open account – just approach the investment product provider directly|
If you want to use your CPF Ordinary Account to invest, you’ll have to open a CPF Investment Account with DBS, OCBC or UOB.
Generally, it doesn’t matter which bank you open your Investment Account with, since the fees and charges are the same for all three.
This account is purely to allow whichever bank you choose to administer the funds. You will still need a brokerage account to actually invest the money, and it doesn’t necessarily have to be with the same bank as your CPF Investment Account.
For example, you can open a CPF Investment Account with DBS, and choose to buy a unit trust with PhillipCapital. PhillipCapital will liaise with DBS to execute the purchase.
If you want to use your CPF Special Account to invest, you can just approach the investment product providers directly. These include fund management companies or investment administrators.
Will you consider utilising the CPF Investment Scheme? Why or why not? We want to hear from you.
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