A small group of Singaporeans are particularly incensed at the idea that our CPF – our money – is locked up in CPF, without any freedom to use them. That idea is, of course, a weird one for Mr Salty. As he mentioned in his earlier post, there are many ways Singaporeans could use their CPF money for. As such, other than using his CPF for buying a HDB resale flat, Mr Salty also used it for investing in stocks.
Under CPF Investment Scheme, we can use a part of our CPF savings (mainly CPF OA) for investments. With careful planning, it is possible to enjoy returns that are better than the CPF interest rates. In this post, Mr Salty will talk about the advantages to using our extra CPF money for investments, the eligibility, calculating the amount that we can use, as well as the steps to setting up a CPF Investment Account.
Why Invest CPF?
CPF allows us to use part of our CPF savings for investments. The most common form of investment we can put our CPF savings in is through trading of stocks and bonds. CPF Investment Scheme (CPFIS) is the name for such a feature in CPF.
As a corporate bee, when considering the issue of investing with his CPF, his first thought was, does this make business sense? To him, the process of taking the money out and putting it into another vehicle has to make more financial sense than leaving it in CPF.
Let’s follow this train of thought on why we should withdraw our CPF for investment purposes.
CPF Basics – Interest earned for each CPF account
One of the reasons why CPF exists was to earn interest until the day we retire. This is a summary of how much interest each of our CPF accounts earn.
| Account | Basic Interest Rate | Maximum Interest Rate (below 55 years old) | Maximum Interest Rate (above 55 years old) |
|---|---|---|---|
| Ordinary Account (OA) | 2.5% (up to 3.5%) | 3.5% for first $20,000; 2.5% thereafter | 4.5% for first $20,000; 2.5% thereafter |
| Special Account (SA) and Medisave Account | 4% (up to 5%) | 5% for $40,000 (or more, if there’s less than $20,000 in CPF OA); 4% thereafter | 6% for $10,000 (or more, if there’s less than $20,000 in CPF OA, up to maximum of $30,000); 5% for the next $30,000; 4% thereafter |
Extra Interest Rate from Singapore Government:
1% on first $60,000 (capped at $20,000 for OA) 2% on first $30,000, and
1% for the next $30,000 for 55 years old and up (capped at $20,000 for OA)
Nobody knows when the Singapore Government will remove the extra interest rate. However, that means the overall interest rate that our CPF OA money would earn comes up to 2.5% – 3.5%.
Earn A Higher Return Than What CPF Gives for CPF OA
Therefore, in order for investing with CPF to make business sense, we should consider whether drawing the money for investment earns more interest than when we leave it in CPF. Unfortunately, if you ask anybody who invests in stocks, most of them would say the return on stock investment is not guaranteed, much less earning 2.5% and more.
All is not lost, though, especially if you do your due diligence.
When Mr Salty looked at the stocks available under CPF Investment Scheme (CPFIS), he found plenty which earned dividends of 2.5% and more. Mr Salty only looked at some of the big names in Singapore. Therefore, there could be other CPFIS stocks that also bring returns of more than 2.5%.
| Trading Name | Trading Code | Mkt Cap ($M) | Yield (%) | Sector |
|---|---|---|---|---|
| DBS | D05 | 56227.13 | 5.61% | Banking & Investment Services |
| Singtel | Z74 | 41639.36 | 4.80% | Telecommunications Services |
| OCBC Bank | O39 | 40735.92 | 5.74% | Banking & Investment Services |
| UOB | U11 | 37442.47 | 4.94% | Banking & Investment Services |
| ST Engineering | S63 | 10772.61 | 4.35% | Industrial Goods |
| SGX | S68 | 8841.05 | 3.64% | Banking & Investment Services |
| Jardine C&C | C07 | 8630.333 | 7.25% | Automobiles & Auto Parts |
| CapitaMall Trust | C38U | 7564.817 | 4.02% | Real Estate |
| Mapletree Ind Tr | ME8U | 5900.02 | 3.83% | Real Estate |
| Olam Intl | O32 | 4742.977 | 5.52% | Food & Beverages |
| Keppel Reit | K71U | 3898.916 | 4.33% | Real Estate |
| SATS | S58 | 3664.423 | 5.83% | Transportation |
| ComfortDelGro | C52 | 3487.886 | 6.08% | Transportation |
| SIA Engineering | S59 | 2338.162 | 5.29% | Transportation |
| SPH | T39 | 2160.876 | 5.19% | Cyclical Consumer Services |
| F & N | F99 | 2146.127 | 3.72% | Food & Beverages |
| ParkwayLife Reit | C2PU | 2050.957 | 3.89% | Real Estate |
| GuocoLand | F17 | 1751.392 | 4.73% | Real Estate |
| ESR-REIT | J91U | 1405.491 | 6.64% | Real Estate |
| SBS Transit | S61 | 1445.297 | 4.13% | Transportation |
Who is Eligible For CPF Investment Scheme?
Anyone who has a CPF account can start investing their CPF savings after fulfilling all of these requirements:
- are at least 18 years old;
- are not an undischarged bankrupt;
- have more than $20,000 in your OA; and/or
- have more than $40,000 in your SA.
From October 2018, newbies to the CPF Investment Schemes have to take a Self Awareness Questionnaire before they can start using their CPF savings for investment.
How Much of My CPF Savings Can I Use For Investments?
According to CPF, we can only use 35% of our investible savings in CPF OA, where “investible savings” is our CPF money in excess of $20,000.
For example, if Mr Salty has $50,000 in his CPF OA, he can only use $10,500 to invest in stocks:
(i) $50,000 – $20,000 = $30,000
(ii) $30,000 x 35% = $10,500
On the other hand, we can also invest our CPF SA savings, after setting aside $40,000. However, the range of investments we can use for CPF SA is a lot stricter than the list allowed for CPF OA.
How Do I Know How Much Of My CPF Savings Can Be Used Under CPFIS?
For those who are too lazy want to double check their calculations, the CPF website has a handy tool that does the calculation for us.
After logging onto CPF, click “My Statement” at the left side bar. Then, go to Section C and click “Investment”. After the new page loads, click on “I wish to view My CPF Investment Scheme (CPFIS) Stock and Gold Limits Computation”.
In the next page, we will be able to see the amount of CPF OA savings we can use for which type of investments, together with the calculation steps on deriving that amount.
What Investment Product Can We Use Our CPF For?
People commonly use their CPF OA for investing in stocks, ETFs and bonds. These are typical products that we can easily transact in using a brokerage firm.
However, there is a whole range of investment products that is allowed under CPFIS. In addition, we can only our CPF SA savings on selected investments.
Thankfully, CPF has compiled a handy list of the types of investments we can use our CPF OA and CPF SA in:
https://www.cpf.gov.sg/Assets/members/Documents/CPFISInvestmentProducts.pdf
How Do I Start Investing My CPF?
Open A CPF Investment Account (CPFIA) With An Agent Bank
The first step to investing through CPF is to open a CPF Investment Account (CPFIA). A CPFIA account can be opened with one of the CPF agent banks:
- DBS Bank Ltd (DBS)
- Overseas-Chinese Banking Corporation Ltd (OCBC)
- United Overseas Bank Ltd (UOB)
The process can be done online, or in person at any of the banks’ branches.
It is also possible to set up a trading account directly with the brokerage affiliated to the banks.
| Bank | Affiliated Brokerage |
|---|---|
| DBS | DBS Vickers |
| OCBC | OCBC Securities |
| UOB | OUB Kay Hian |
Link or Transfer CPFIA
However, if you already have a trading account with one of the eligible brokerage firms that are not related to the 3 agent banks above, you can still link the newly opened CPFIA to the brokerage you are currently using.
If you do not have a trading account, then it’s more or less OK to stick with the bank that you opened the CPFIA with. As Mr Salty mentioned in an earlier post, the fees charged by the brokerage firms are almost identical.
The only difference would be the customer service provided, which can be rather subjective, as different people respond differently to various services. For example, Mr Salty is quite pleased with using DBS Vickers and had been using it for almost 10 years. However, his friend went through a lot of hassle linking his CPFIA to DBS Vickers, which made him question Mr Salty’s recommendation – publicly.
It is also possible to transfer one’s CPFIA to another agent bank (e.g. from OCBC to UOB). It would incur cost and time (all banks noted the transfer would take about 2 working days).
That being said, the list of brokerage firms that we can use for CPF Investment Scheme can be found in the link below.
https://www.cpf.gov.sg/Assets/Members/Documents/SDS_AnnexESGXBrokingFirmsforRetailClients.pdf
The list of stocks that we can purchase under CPFIS with our CPF OA can be found in the website below maintained by SGX.
https://www2.sgx.com/securities/stocks-under-cpf-investment-scheme
Practical Notes For Investing With CPF
Only One CPFIA Per Person
Everyone can have multiple trading accounts with different brokerage firms. However, we can only have one CPF Investment Account each. Therefore, it is important to note that whichever bank you choose to open your CPFIA with, you have to be very comfortable with liaising with them (at least in the initial stage of setting up the account).
Thereafter, if you want to use a different brokerage firm, you can link the CPFIA to that brokerage firm.
According to a reader of Mr Salty, whereas the money was deposited on the same day of settlement if the deal was done at a brokerage owned by the agent bank, there’s a delay of a few working days if the transaction was done at a non-affiliated brokerage.
Other than that, there is no significant difference between a linked CPFIA and a CPFIA that is wholly managed by a brokerage firm. Therefore, simply linking the CPFIA to a new brokerage saves time and money (yes, it costs money!) compared to transferring the CPFIA to another agent bank.
Avoid Speculation When Investing With CPF
For Mr Salty, he took a long term stance when using his CPF money, compared to using cash. After all, when we use our CPF savings, we are already burdened with the expectation to earn more than 2.5% in return.
Or to put it in another way, the moment we take out our CPF savings for investment, we would lose 2.5% per year. It is up to our decisions to make up that 2.5%, and to do better.
Therefore, Mr Salty started with placing his money in blue chips like SGX or SBS Transit, which gives about 3.5% – 4.5% dividend.
Thereafter, he diversified by investing in riskier products like REITS that give annual returns of more than 6%. Mr Salty was lucky that Singapore REITs had been doing very well for many years leading up to the pandemic. Therefore, it is really up to individuals to decide how to spread their investment risks.
Investment As A Buffer
The last “use” for CPFIS is as a buffer for the time when we use our CPF to buy flats. As mentioned by Mr Salty before, when buying a house, we can now set aside up to $20,000 in our CPF OA, instead of using it all. In the event that we lose our jobs, we will still have buffer savings in our CPF to pay for the monthly instalment.
A savings of $20,000 (maximum allowed) will be able to pay for monthly instalments of $1,000 for 20 months, or 1 year 8 months.
On top of that, the money used in stocks will not be counted towards the savings of $20,000. In other words, if Mr Salty had $20,000 in stocks, and he chose to set aside $20,000 in his CPF savings, he would have a total of $40,000 for rainy days.
For more of how we can set aside money in our CPF for rainy days after buying a house, you can go and read the post “You Do Not Have To Use Up Your CPF”.
Stocks Bought With CPFIS -Where Are They Deposited?
In Mr Salty’s previous post introducing the basic terms used in stock trading for retail investors, he highlighted that all stocks bought are stored in the CDP. They are like the information stored on hard drive – all the pictures we have are on the hard drive, it’s just a matter of which folder we save the photos in.
In the case of CPFIS stocks, however, the stocks are not stored in the CDP. Instead, it is managed by the bank that we opened the CPFIA with. This is why (i) we don’t see the stocks we bought with CPF money when we log into our CDP account; and (ii) CPF advise us to refer to our banks to view our portfolio of CPFIS stocks.
Parting Words
Our CPF already gives us a very good rate. Even at 2.5% for savings in CPF OA above $20,000, the interest still beats every single bank’s savings rate in Singapore. However, it is always better to try to have a rate of return above 3% to beat the average inflation rate.
CPF Investment Scheme allows us to make use of our CPF savings for investment. We can make use of 35% of the money in excess of $20,000 to invest in stocks that can potentially provide a return of 3.5% and more. Opening an account with one of the 3 largest banks in Singapore can be done online and expeditiously, and there is a variety of brokerage firms for us to link our CPF Investment Account in order to start trading using our CPF savings.
Unlike trading with cash, we do have to take a more defensive approach when investing with CPF. If not, we would have defeated the purpose of using it to earn more than 2.5% in interest.
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Remember, salty is life!
Sources of Information Used
General Information on CPF Investment Scheme
https://www.cpf.gov.sg/Members/Schemes/schemes/optimising-my-cpf/cpf-investment-schemes
Investment Products Available for CPFIS
https://www.cpf.gov.sg/Assets/members/Documents/CPFISInvestmentProducts.pdf
Stocks We Can Buy Under CPF Investment Scheme
https://www2.sgx.com/securities/stocks-under-cpf-investment-scheme
List of brokerage firms that we can use for CPF Investment Scheme
https://www.cpf.gov.sg/Assets/Members/Documents/SDS_AnnexESGXBrokingFirmsforRetailClients.pdf
List of Agents for Investing CPF SA
https://www.cpf.gov.sg/Assets/members/Documents/INV_AnnexC.pdf
CPF Interest Rates
https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-interest-rates
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