Should You Invest Your CPF Ordinary Account (OA) Money?

With the money in our CPF Ordinary Account (OA) earning 2.5% p.a., should you be investing the money instead to reap higher returns? Here’s what you need to know before channeling your CPF OA money into investments.

 

Here in Singapore, just 80% of our monthly salary appears in our bank accounts, with 20% going into our CPF. Our CPF OA is one of the three (or four, if we’re at retirement age) CPF accounts we have. It is also the account that gets allocated the largest proportion of our salary each month, at least until we reach 60 years old. 

With so much money being channeled into our CPF OA over the years, some may choose to is to invest it to grow their wealth. But before we weigh the factors to consider, we first need to understand the purpose of our CPF OA.

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What is your CPF OA for?

Each of our CPF accounts has a different purpose. The money in our CPF OA is meant for housing, insurance and investments.

More specifically, you can use the money in your CPF OA to pay for your home loan as well as the downpayment of your property purchase, including the stamp duty and legal fees. For HDB flat owners, you can also use your CPF OA money for Housing Protection Scheme premiums.

There's also the option of investing your CPF OA money under the CPF Investment Scheme (CPFIS). You will need to meet the eligibility requirements of the CPFIS in order to invest your CPF OA money. 

These eligibility requirements are: 

• At least 18 years old
• Not an undischarged bankrupt
• Have more than S$20,000 in your CPF OA
• Have more than S$40,000 in your CPF SA

You will also need to take the Self-Awareness Questionnaire (SAQ) on the CPF website. This will help you to assess whether you are suitable to invest under the CPFIS.

Yes: Pros of investing your CPF OA money

Your CPF OA money earns 2.5% p.a. The first S$60,000 of combined CPF balances (up to S$20,000 from the CPF OA), earns an extra 1% p.a. This means your CPF OA money earns up to 3.5% p.a., absolutely risk-free. 

While 2.5% p.a. looks reasonable when compared to the likes of fixed deposits, Singapore Savings Bonds and savings accounts, it might not cut it when it comes to truly growing our wealth. This is the main reason why savvy Singaporeans might choose to invest their CPF OA money.

Due to the higher returns, be it 5%, 10%, 15% or more, some may choose to invest these funds. This could be for the purpose of a comfortable retirement, or simply to make the most of your CPF OA savings. 

So, what can you invest in?

Here are the investment products available for your CPF OA money:

• Shares (up to 35% of investible savings)
• Exchange Traded Funds (ETFs), including Gold ETFs (up to 10% of investible savings)
• Other gold products (up to 10% of investible savings)
• Unit trusts
• Investment-linked insurance products
• Annuities
• Endowment policies
• Singapore Government Bonds
• Treasury bills
• Fund management accounts
• Property funds (up to 35% of investible savings)
• Corporate bonds (up to 35% of investible savings)

For a more detailed breakdown of these investment products, read this article. 

Recently, Endowus, a robo-advisor has gotten the green light from CPF to allow customers to fund their portfolios with their CPF OA money. Read our in-depth review of Endowus here.

In September 2021, Endowus even launched a feature that projects your CPF account balances across different life stages. Dubbed the Endowus CPF Calculator, you'll need to do is to key in your current age, salary, and CPF balances. Then, input your desired retirement age and retirement income.

From there, the projections will be displayed and you'll be sent a personalised CPF Prepared Report. Within the report contains recommendations to help users better plan for home purchases and how to grow their CPF accounts through investing or existing CPF schemes.

No: Cons of investing your CPF OA money

#1 If you have plans to use the CPF OA money in the near future

You can use your CPF OA money to pay for your house downpayment, stamp duty, legal fees as well as your home loan. 

Investing your CPF OA money means that you would risk having to liquidate your investments at a time when markets are down should you need your CPF OA money urgently — hardly a good investment decision. 

Do a quick calculation of the amount you’ll need to have in your CPF OA, before taking the spare CPF OA cash to invest. Also keep in mind that you always have the option to pay for these costs in cash, if you have the cash on hand. 

#2 If you’re not sure how to invest

All investments come with risk. If you’re not confident of investing on your own, leaving your money in your CPF OA means at least 2.5% p.a. in interest is secured.

It’s also worth a mention that there are a significant number of people (one in two, in fact) whose investments fail to outperform the CPF OA interest rates.

Alternatively, you can also consider transferring your CPF OA into your CPF Special Account that earns 4% p.a. (up to 5% p.a.). However, this is a one-way transaction that cannot be reversed. Read this article on the pros and cons of keeping your savings in your CPF SA to find out more. 

Reasons to invest your CPF OA money	Reasons to keep your CPF OA money in the account, untouched
Potential to earn yourself returns of more than 2.5% p.a.	End up investing the money you require for housing purposes
Retain more cash on hand (that you would’ve used to invest) for other purposes	‘Lose out’ on a risk-free 2.5% p.a. (up to 3.5% p.a.) interest
Wide range of products to invest in	CPF money and investment gains (if any) cannot be ‘cashed out’ till 55 years old

Things to note before you invest your CPF OA money

 

• Your CPF money can only be withdrawn from age 55 years old onwards. This means that your investment gains and dividends (if any) cannot be ‘cashed’ out just yet. Even when you turn 55 years old, you can only withdraw your CPFIS investments as well as the cash balance in your investment account, after you have set aside the Full Retirement Sum (FRS) in your Retirement Account (RA). 

• You can’t invest all your CPF money. You can only invest CPF OA balances above S$20,000, keeping at least S$20,000 in your CPF OA account.

• The CPF money you use for investments under the CPFIS does not incur accrued interest. When you use your CPF OA money to pay for your property, you’ll need to return the principal amount plus accrued interest, back into your CPF OA when you sell the house. However, this is not the case for CPF money used for investment purposes.

Finally, you should be confident of earning more than the 2.5% p.a. risk-free interest that’s guaranteed should you keep your money sitting comfy in the CPF OA account. A longer investment horizon will allow your investments to ride out the volatility in the markets and steadily compound your returns over time.

Begin by opening a CPF Investment Account with one of the three CPFIS agent banks: DBS, OCBC or UOB. 

However, if you’re still undecided, you can instead start to beef up your investment experience by investing the spare cash that you have. One way to get started is to invest in the portfolios offered by robo-advisors, or pick stocks by using a brokerage account. 

 

 

 

 

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