In the Ordinary account, the interest is 2.5% or 3.5% depending on how much is in there.
In Special account, the interest is 4% or 5%.
But I don't think many Singaporeans look to it as an investment product that they can "buy" into.
First things first. If we're going to be talking about CPF, there's a few points we need to first consider.
1) Do you trust the Government of Singapore in the long term?
2) Do you think you will live in Singapore for the rest of your life?
So, if you think that CPF is a ponzi scheme, then there's nothing to talk about.
The best way to handle CPF for someone like this is to use up as much of their CPF funds by using it to buy anything they can use it for. Housing, Investments, etc.
But, if you trust the CPF and that eventually, you believe that you'll get your monies back, then the next question becomes, will you be living in Singapore in your old age.
This question isn't too important, cos IF you ever choose to migrate and take up another citizenship, then you can just withdraw all your CPF money.
So the thought process is...
IF you want to stay in Singapore when you're old, then there's no escaping the CPF Retirement Sums. Which is to set aside CPF funds so that you can enjoy CPF Life. You'll need to set aside money when you're 55 years old.
IF you don't want to stay in Singapore, then no difference, cos you can migrate and withdraw your money.
I'll put out some assumptions on how I build this train of thought.
Most Singaporeans work til 55 and above.
Most Singaporeans don't invest much, put in Fixed D, or are persuaded by bankers to buy some "safe" structured products.
Most Singaporeans will stay in Singapore for most of their lives and won't migrate.
Many Singaporeans buy too much stuff anyway and actually have excess money to save IF they wanted to, so they don't really need excess liquidity.
If we look at things this way, putting money into the CPF Special account makes a whole lot of sense.
4% isn't too shabby. It's actually a pretty good rate of return.
Someone could potentially use the CPF SA as a long term fixed deposit account.
And when the person is 55 years old, this person can take out any excess money above the Retirement Sum required.
If you don't need the flexibility of the Ordinary account, you could even transfer a bulk of the funds from the OA to the SA and enjoy a higher interest rate.
Of course, the main problem here is that we can't touch the funds from the Special account.
But if you're a frugal Singaporean with intent to work til 55 years or more, then you probably won't need too much money in the Ordinary account OR the bank account, after taking into account an emergency fund.
So for example...
You could be a very prudent Singaporean... I have a friend like this...
She wants to pay off her bank loan as soon as possible for her housing. She works in a fairly ok job. Not super high pay, but good enough. This is the same as her husband.
She is highly risk adverse, and has multiple insurance policies and she doesn't like investments.
For someone like her, she could pay the minimum monthly installment amount for her HDB loan at a fixed 2.6%, then any excess free cash, she could just use to top up her CPF SA account.
Currently, she uses her excess cash to pay off her 2.6% CPF loan. But it is actually better for her to top up her SA account.
Of course she would need to have some sort of emergency fund for any unforeseen circumstances.
Then when she reaches 55 years old, she will be able to withdraw a sizable amount from her CPF, cos in all likelihood, she would have fulfilled the CPF Retirement Sum and more.
Or even for me, I might look towards topping up my SA account.
This is similar to my older post, Defending your Position.
CPF retirement Sum, is required... If you're intending to stay in Singapore for the long term, there's no two ways about it. So it's prudent for me to top it up until the required retirement sum.
Cos maybe if I invest it, markets may be poor when I'm 55 years old and I won't have enough cash to top up my Retirement Sum, cos currently the amount in my SA and OA aren't enough for the Retirement Sum.
So for me/us, we've pretty much paid off our HDB.
Then we have set aside a chunk of money for investment.
But on the side, we also are paying off our other "debts".
Cos investments will fluctuate. The value of my investments will go up and down.
But debts don't fluctuate. We have to settle them sooner or later.
And personally, I'd rather settle my debts when my investments are up. Although this may mean I'll have less funds for even MORE investments.
BUT, at least I'm sure that when my investments are down... which I'm sure eventually they will be, cos that's the normal cycle of investments...
When when my investments are down, I'll like to have really low "debts" or maybe even no "debts".
I consider CPF Retirement Sum something like a "debt" cos... well we have to have that amount, otherwise, we will need to pledge our homes to "top up" the shortfall, and IF we sell our place, the money will be returned to CPF for the Retirement Sum.
And well... any excess can still be withdrawn at 55 years old! That's a good thing. It's a safe 4% return.
IF you trust the Government and CPF.
So maybe you could look towards the CPF Special account as an investment product instead of thinking of it as locking up your money. Cos really... 4% is a pretty good rate of return.
It could be a good addition or alternative to whatever other investments which you are already doing.
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