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Understanding How Singaporeans’ CPF Savings Are Invested

CPF savings are used to invest in the Special Singapore Government Securities (SSGS) to generate returns for CPF members.

Like most other types of savings, our CPF savings earn us an interest return and that helps compound and grow our retirement nest egg. CPF returns are risk-free, with our CPF Ordinary Account earning us a minimum of 2.5% p.a., while our Special Account and MediSave Account earn us a minimum of 4.0% p.a. (this has been revised upwards to 4.01% for the period from May 2022 to April 2023).

While CPF interests earned are risk-free and do not require any actions from CPF members, our CPF savings are not untouched.

CPF Savings Are Invested In Special Singapore Government Securities

To generate returns on CPF savings, the CPF Board invests CPF monies in an instrument called Special Singapore Government Securities (SSGS). SSGS are issued and guaranteed by the Singapore government, one of the few remaining triple-A-credit-rated governments in the world.

SSGS is different from the Singapore Government Securities (SGS) and Treasury Bills (T-bills) that some of us are more familiar with. SSGS are non-tradeable and are only issued by the government to the CPF Board. The payouts from the SSGS are pegged to the interest rates that the CPF Board is committed to paying its members.

Read Also: Guide To CPF Interest Rates: Ordinary Account, Special Account, Retirement Account, MediSave Account

The funds from the SSGS issuance are pooled with the rest of the government’s funds such as proceeds from the tradable SGS, and any government surpluses such as proceeds from land sales. These comingled funds are first deposited with the Monetary Authority of Singapore (MAS) as Government deposits. MAS converts these funds into foreign assets through the foreign exchange market.  A major portion of these assets, are however, of a longer-term nature, and thus transferred over to be managed by GIC.

Source: Ministry of Finance

It’s worth highlighting that neither CPF members nor the CPF Board bear any risk, regardless of the performance of GIC’s investment. The investment risk is wholly borne by the government on its own balance sheet.

Under the Government Securities Act, the government cannot spend the monies raised from the SSGS, SGS, Singapore Savings Bonds (SSB) and Reserves Management Government Securities (RMGS). The funds are invested, with the returns used to cover the debt servicing cost.

Investing Our Own CPF Savings Via The CPF Investment Scheme (CPFIS)

While CPF members can leave their savings untouched and earn the risk-free returns that are guaranteed by the government, there is also an option for them to invest their own CPF savings via the CPF Investment Scheme (CPFIS)

Through the CPFIS, CPF members can invest in a variety of instruments such as unit trusts/mutual funds, exchange-traded funds (ETFs), fixed deposits and individual stocks. These investments have to be approved by the CPF Board to be included under the CPFIS.

One advantage of investing your own CPF savings is to earn higher returns. This also means you have to accept the investment risk and be able to stomach market volatility that may cause your investments to decline in value in certain years. To invest on our own, we also need to be knowledgeable so we can make good investment decisions that will allow us to earn a higher return than the risk-free rate offered by CPF. Otherwise, we are better off leaving our investment monies untouched.

For those who wish to invest their CPF savings, it’s more logical to invest in our CPF Ordinary Account since it gives us a lower interest rate of 2.5% p.a., as compared to our CPF Special Account that gives us at least 4.0% p.a. We cannot invest our MediSave savings.

Read Also: 8 Types Of Investments You Can Make Using Your CPF OA Monies Via The CPFIS-OA

Since our CPF savings are likely to form a vital component of our retirement nest egg, it’s essential that the funds are not only kept secured, but are also allowed to grow over the long-term. By investing CPF monies in the SSGS, the CPF Board can keep our savings safe, while providing an attractive risk-free interest that can compound over time. The returns are also earned by CPF members without having to bear additional costs such as management fees or commission charges.

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