Things to consider before using your CPF OA to invest in Singapore Government Bonds and Treasury Bills.

In the current rising interest rate environment, the interest rate for the Singapore Savings Bond (SSB), Singapore Government Bonds (SGS bonds) and Treasury Bills (T-bills), are also going up. See the difference between these securities below or you can also visit here for more details.

Unlike the SSB where you can only purchase with Cash or Supplementary Retirement Sum (SRS), you can use your CPF monies to purchase SGS bonds and T-bills.

Hence with the recent 6 month T-bills yield of 3.32%, way higher than the OA interest of 2.5%, many people including myself are considering using our CPF OA to purchase the T-bills via CPFIS (CPF investment scheme) to supercharge our OA savings.

However, before going ahead with getting the securities with your OA, there are a couple of points consider first.

1) Transaction fee and service charge

Depending on the CPFIS agent bank you go with, there is a typical buy and sell transaction fee of $2.5 and a quarterly service charge of $2 per counter.

This means that for a 6 months T-bills, you will pay $2.5 for the purchase and $4 for 2 quarters of service fee totaling $6.5.

2) Additional loss of CPF OA interest

Note that CPF calculate your interest rate monthly based on the minimum balance for that month or in CPF words below.

This mean that depending on the Auction date and maturity date of the SGS bonds or T-bills, you will not earn any OA interest for an extra month or 2 compare to the duration of these securities.

For example, the next 6 months T-bills Auction on 29 Sept 2022 and matures on 4 Apr 2023. The amount deducted from your OA account for this T-bills will not attract OA interest for the months of Sept 2022 up till Apr 2023, a good 8 months, while your T-bill is only earing interest for 6 months.

Do note that you will get your interest payment every 6 months except for T-bills where you get the interest upfront due to the short duration. These interest will earn OA interest as they come in.

You need to take all of that into consideration in calculating if the additional interest for the SGS bonds or T-bills is worth it.

[Update 1st OCT 2022: After the SGS or T-bills matures and the money gets returned to your CPFIA, it may not be automatically transferred back to your CPF OA account immediately. For POSB/DBS, the money will be held in the CPF Investment Account (CPFIA) and if there are no transaction for 2 month, it will then be automatically transferred back to your CPF OA. So do check with your bank on the details so that you will not lose out more on the interest in CPF OA]

3) These securities are a fixed term bonds/bills and are not as flexible as SSB.

Although you can sell the SGS or T-bills in the secondary market, there are usually not much liquidity. This mean that there are not a lot of buy and sell transaction happening for these securities and hence it will be very difficult to sell them in the open market.

This is unlike SSB where you can just withdraw with a month's notice at a small transaction fee of $2.

So do note that if you need your OA for your housing loan payment due to some emergency, you might not be able to sell of the SGS bonds/T-bills readily.

4)    You will only know the interest rate after the bidding.

You can participate in the securities auction via a competitive bid or a non-competitive bid.

A competitive bid is one where you have to specify the price (to be expressed in terms of percentage yield) that you are willing to pay for the SGS bond/T-bill.

You may or may not be allotted the securities after the auction, depending on your submitted yield relative to the yields submitted by all the other competitive bidders.

A non-competitive bid is one where you do not specify a price (to be expressed in terms of percentage yield) but you will be allotted the SGS Bonds/T-bills at a uniform yield based on the results of the competitive tenders.

This mean that you will know if you are successful in getting the securities or what is the final yield if you get them. This might be an issue if the yield turns out to be unfavorable.

And if you are still interested in getting SGS bonds or T-bills with your OA after considering all of these, you will first need to open a CPF Investment Account with DBS/POSB, OCBC or UOB.

After that, you will need to submit an application in person at any branch of the CPF Investment Scheme (CPFIS) bond dealers (DBS/POSB, OCBC, or UOB).

Note that all these can take awhile so you need to apply early if you want to catch a certain SGS bonds or T-bill issue.

For me, I maybe going for the upcoming 6 months T-bill with some cash or SRS and the 12 months T-bill with a portion of my OA.

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