Why every Singaporean should consider using their CPF OA funds to invest in T-Bills

Singaporeans collectively hold over $566 billion in their Central Provident Fund (CPF) accounts, with more than $178 billion in their Ordinary Accounts (OA). Given the substantial amounts involved, it's crucial for individuals to maximize the returns on these savings. One highly effective way to achieve this is by investing OA funds in Treasury Bills (T-Bills), which offer higher yields compared to the standard CPF OA interest rate of 2.5% per annum (p.a.).

T-Bills are short-term government securities issued by the Singapore government, typically with tenors of 6 months or 1 year. These instruments are considered risk-free because they are backed by the government. As of October 2023, the cut-off yield for 6-month T-Bills was 3.95%, significantly higher than the 2.5% interest rate offered by CPF OA. This presents a unique opportunity for Singaporeans to earn higher returns on their CPF OA savings without taking on additional risk.

Benefits of Investing in T-Bills

Higher Returns: The latest 6-month T-Bill offered a yield of 3.95%, which is 1.45% higher than the CPF OA interest rate. For example, if you invest $80,000 from your OA into T-Bills, you could earn $3,160 annually, compared to just $2,000 if you leave it in the OA.

Risk-Free Investment: T-Bills are backed by the Singapore government, making them a safe investment option. This is particularly important for risk-averse individuals who want to ensure the safety of their principal amount.

Flexibility: T-Bills are issued every two weeks for 6-month tenors and every four months for 1-year tenors. This frequent issuance allows investors to reinvest their funds regularly, taking advantage of potentially rising interest rates.

Comparison: 6-Month vs. 1-Year T-Bills

While it might seem that a 1-year T-Bill would be more advantageous due to its longer tenor, a 6-month T-Bill offers better flexibility. In a rising interest rate environment, shorter-term T-Bills allow investors to reinvest at higher rates more frequently. This is particularly beneficial given the current global trend of increasing interest rates.

Maximizing CPF Returns Before Investing in T-Bills

Before investing in T-Bills, CPF members should first maximize the returns on their combined CPF balances. Members below 55 years old can earn an extra 1% interest on the first $60,000 of their combined balances, while those aged 55 and above can earn up to 6% interest on the first $30,000. This strategy ensures that you are already earning the highest possible returns on a portion of your CPF savings before moving additional funds into T-Bills.

Cost of Investing in T-Bills Using CPF OA

The minimum investment amount for T-Bills is $1,000, with subsequent investments in multiples of $1,000. Investors will incur a transaction charge of $2.50 per transaction and a service fee of $2 (plus GST) per counter per quarter. These costs are relatively low compared to the potential returns, making T-Bills an attractive investment option.

How to Apply for T-Bills Using CPF OA

To apply for T-Bills using CPF OA, individuals need to have a CPF Investment Scheme (CPFIS) account with an agent bank (DBS, OCBC, or UOB). Applications can be made online through internet banking, and it's important to note that the cut-off date for applications is typically two days before the auction date.

Investing CPF OA funds in T-Bills is a strategic move for Singaporeans looking to maximize their returns without taking on additional risk. With yields significantly higher than the standard CPF OA interest rate and the backing of the Singapore government, T-Bills offer a compelling investment opportunity. By understanding the benefits and costs involved, and by strategically timing investments, individuals can make the most of their CPF savings.