CPF: 40% of the investments by CPF members using their CPF didn't give good return. 21% had an annual return rate lower than 2.5% interest rate of the Ordinary Account, and the remaining 20% incurred losses. Only by understanding risks and adhering to discipline you can make money work for you.*

*40% of the investments by CPF members using their CPF didn't give good return. 21% had an annual return rate lower than 2.5% interest rate of the Ordinary Account, and the remaining 20% incurred losses.  Only by understanding risks and adhering to discipline you can make money work for you.*

 

(Translated from an article in Lianhe Zaobao by Doubao app of China)

https://www.zaobao.com.sg/finance/singapore/story20250323-6013031

 

March 23, 2025

 

Hu Yuanwen

Associate Director of Financial News, Lianhe Zaobao

 

Over the past three years, market interest rates have risen. The 2.5% interest rate of the Ordinary Account (OA) of the Central Provident Fund (CPF) cannot keep up with the pace of rising prices. It pales in comparison to Treasury bills and government bonds, prompting more and more Singaporeans to consider investing their CPF funds. According to a survey released by the Securities Association of Singapore (SAS) and the Securities Investors Association of Singapore (SIAS) in February, 96% of the respondents knew that they could invest their CPF funds, 72% had already done so, and 73% planned to invest within the next six to 12 months. The most popular investment options include Singapore Savings Bonds, Treasury bills, stocks, exchange-traded funds (ETFs), and unit trusts.

 

Chen Zhirong (35 years old), who works in the education sector, started transferring the savings in his CPF Ordinary Account to the Special Account (SA) gradually in the two or three years after entering the workforce to earn a higher interest rate. After his Special Account reached the full deposit amount, he then considered how to achieve higher returns on the savings in his Ordinary Account. After careful consideration, he decided to invest.

 

In January 2023, he invested S$10,000 in a global equity index fund and a Singapore dollar fixed-income fund in a ratio of 80 to 20. He achieved a return rate of more than 30% over a two-year period.

 

Seeing Chen Zhirong's investment return rate, many people may be tempted. However, experts remind that CPF investment is not suitable for everyone.

 

Data from the Central Provident Fund Board (CPFB) shows that from January 2016, when data was first available, to the end of 2023, a total of 679,000 members invested through the CPF Investment Scheme (CPFIS). Among them, 59% earned an annual return rate higher than the 2.5% interest rate of the Ordinary Account, 21% had an annual return rate lower than 2.5%, and the remaining 20% incurred losses.

 

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If we look at the data for 2023, 58% of the investing members had an annual return rate higher than 2.5%, 15% had an annual return rate lower than 2.5%, and 27% incurred losses.

 

In other words, more than 40% of CPF investors could have obtained higher returns if they had left their money in their CPF accounts. Huang Junting, Chief Executive Officer and Head of Investments at MoneyOwl, a financial advisory firm under the Temasek Trust, believes that this so-called "failure rate" is quite high, which may be due to the investment timing or investment choices.

 

She said, "This shows that investing in the CPF Ordinary Account is not suitable for everyone."

 

Gao Junwei, Deputy Director of Financial Advisors at Financial Alliance, also believes that only a small portion of people are suitable for investing with their CPF funds.

 

He said, "Many people are enthusiastic when talking about 'making money' through investment. But in reality, they don't truly understand what risk is. Most of the people I've met tend to overestimate their risk tolerance."

 

He emphasized that investment is never "a sure win." The market goes up and down, and returns and risks always go hand in hand. Everyone should be clear that investment can not only bring returns but also losses.

 

Gao Junwei suggests that those who are interested in trying CPF investment should start with a small portion, such as 10% of their investable deposits, to test the waters. Decide whether to increase the investment amount after a year.

 

Experts: Losses in CPF Investment May Be Due to Over-concentration and Lack of Diversification

 

Fu Jihui, a financial advisor at Providend, a financial planning firm, has heard of failure cases of clients and potential clients investing with their CPF funds from time to time. He analyzed that there could be several reasons for losses in CPF investment:

 

Over-concentration in individual stocks, sectors, or regions, lacking diversification.

 

Trying to time the market or chasing after funds or stocks that have performed well in the past, assuming that this trend will continue. Empirical studies have shown that this approach is usually in vain. When the market goes up and down, investors may be swayed by emotions and buy high and sell low.

 

High fees of investment vehicles.

 

The expense ratio of unit trusts usually ranges from 0.4% to 1.75%, and the fees for unit trusts with higher risks are close to the upper limit of 1.75%. The total expense ratio of investment-linked insurance policies (ILPs) usually ranges from 0.5% to 1.75%. The total distribution cost of endowment plans and annuities as a percentage of a single premium is usually higher.

 

Fu Jihui said, "Some people think that the investment vehicles under the CPF Investment Scheme are safe because they have been approved by the CPFB. But this is a misunderstanding. The purpose of the CPFB's review of these investment vehicles is to ensure that they meet specific risk tolerance levels and investment objectives, not to guarantee their safety."

 

Su Qianting, Chief Client Officer of Endowus, an investment platform, said that the products under the scheme are not suitable for everyone, and the returns of investment products can never be guaranteed. Many investors may not fully understand how they work and the risks involved.

 

Although investors are required to complete a questionnaire before investing their CPF funds, some financial institutions, driven by interests, may recommend funds with higher rebate fees or promote more expensive fund categories, which will significantly erode investment returns.

 

Six Aspects to Consider Before Investing CPF Funds

 

Financial experts point out that before deciding whether to invest with CPF funds, one should consider the following points:

 

Set aside a sum of money to meet mortgage and other working capital needs.

 

Fu Jihui suggests that only deposits that are not needed in the short term should be considered for investment. Funds that need to be used for housing down payments or children's education in the near future should be kept in the Ordinary Account.

 

Huang Junting suggests setting aside a sum of money, including at least a six to 12-month mortgage buffer (if there is an outstanding mortgage), as well as funds needed for education or buying a house.

 

Consider transferring deposits from the Ordinary Account to the Special Account or the Retirement Account.

 

Huang Junting said that the next step is to consider whether to transfer the deposits in the Ordinary Account to the Special Account or the Retirement Account to earn risk-free interest rates of up to 5% and 6% respectively, especially if the Special Account has not yet reached the Full Retirement Sum.

 

The basic interest rate for deposits in the CPF Special Account is 4% (5% for the first S$60,000). If the Special Account is topped up to the current Full Retirement Sum level, relying on the 4% interest rate, it can basically ensure that the deposit in the Special Account will reach the Full Retirement Sum level at the age of 55, because the annual increase of the current Full Retirement Sum is slightly lower than 4%. At the age of 55, the deposit in the Special Account will be transferred to the Retirement Account first, and then the member can receive the income from the CPF LIFE scheme after retirement.

 

However, it should be noted that this transfer is irreversible. Once transferred to the Special Account, the money can only be used for retirement.

 

Consider the investment period.

 

After considering the first two points, if you decide to invest the deposits in the Ordinary Account, Huang Junting suggests an investment period of at least eight years, or even 10 years, to withstand short-term market fluctuations. This is conducive to investing in globally diversified funds, of which 40% to 60% are stocks (the rest are bonds). Historically, the annual return rate of such funds usually exceeds 4%.

 

If you expect to use the deposits in the Ordinary Account to buy a house within the next eight to 10 years, you should not invest, otherwise you may be in a dilemma of having to sell your investments at a loss when you need the funds. Fu Jihui said that the longer the investment period, the higher the risk you can afford.

 

Assess your risk tolerance.

 

However, even for long-term investments, you still need to assess your own risk tolerance. Historical returns do not guarantee future returns, and there are risks in investment. You may not only get an annual return rate lower than 2.5%, but also incur losses.

 

This means that you should be able to accept short-term fluctuations when investing and avoid panicking and selling when the investment value drops, resulting in actual losses.

 

Decide on the investment method.

 

History tells us that the key to benefiting from the long-term upward trend of the capital market is to hold investments for the long term, achieve global diversification, and maintain low costs. Over the past 90-odd years, the capital market has recovered after experiencing many crises.

 

This principle does not apply to individual stocks, specific industries, or single-country market funds. Assuming these non-systematic risks means having to bear additional uncertainties.

 

Calculate the investment cost and fees.

 

Investment cost is an important factor affecting returns. For the CPF Investment Scheme, in addition to the costs usually involved in cash investments, investors also have to pay agent bank fees, including transaction fees and quarterly service fees. Huang Junting said that this means that the cost of small investments is relatively high, which may erode investment returns. Therefore, CPF may not be suitable for small "regular investment plans".

 

The survey by the SAS and SIAS also shows that these fees are a barrier to people's investment. 71% of the respondents said that they are more likely to invest if the agent bank fees are reduced.

 

CPFB: Any investment comes with risks. The public must ensure they have investment knowledge.

 

A spokesperson for the CPFB pointed out that the CPF Investment Scheme gives members the opportunity to potentially earn higher returns on their CPF savings by taking on certain risks. "Like any investment vehicle, the CPF Investment Scheme also has certain risks. Members who wish to use their CPF savings for investment should ensure that they have investment knowledge and the time to monitor their investments. They should also clearly define their investment objectives, time horizons, and the level of risk they are willing to take."

 

The spokesperson said that the CPFB has been improving the scheme over the past 20 years, including improving the quality of fund selection, reducing investment costs, and the recent introduction of low-cost funds. In addition, since October 2018, a "self-awareness questionnaire" has been introduced when opening an investment account to help members assess whether CPF investment is suitable for them.

 

Fu Jihui also reminds that there are two things to note when investing with CPF funds.

 

First, the timing of the outflow and inflow of CPF funds will affect the interest rate of CPF. For example, a sum of money used for investment this month will not earn CPF interest this month; if a sum of investment matures this month and the funds return to the CPF account, they will not earn interest either. This has a relatively greater impact on short-term investments such as Treasury bills.

 

Second, the proceeds from the sale of investments or the maturity of investments will first return to the CPF investment account of the agent bank. This account only has an annual interest rate of 0.05%. Only when there are no transactions for two consecutive months will the funds be transferred back from the bank to the CPF account to start earning interest. If members do not plan to invest again, they should request the agent bank to transfer the funds back to the CPF account.

 

Huang Junting reminds the public to think carefully before investing with CPF funds. "CPF offers a generous risk-free interest rate, laying a good foundation for most Singaporeans. Optimizing CPF means making full use of the compound interest of CPF deposits to grow retirement funds, rather than taking risks that one cannot afford in pursuit of higher returns that may not be necessary."

 

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