SINGAPORE - Central Provident Fund (CPF) interest rates will remain unchanged till June 30, even as both borrowing and savings rates globally look set to stay elevated.

Some CPF members may be looking for ways to make every dollar of their savings work harder.

The Straits Times deep-dives into the CPF Investment Scheme (CPFIS) to find out how CPF savings can be invested to grow the retirement nest egg.

1. Getting started: Maintain CPF balances 

CPF members have to keep $20,000 in their Ordinary Account (OA) and $40,000 in their Special Account (SA) before they can invest the remaining funds.

For members below the age of 55, this $60,000 sum earns extra interest of 1 per cent per annum. This gives them up to 5 per cent interest annually on the first $60,000 of their combined CPF balances.

Those aged 55 and above earn extra interest of 2 per cent a year on the first $30,000, and 1 per cent on the next $30,000 of their combined CPF balances. This gives them up to 6 per cent on the first $30,000 of their combined CPF balances, and up to 5 per cent on the next $30,000.

2. Getting started: Have a CPF Investment Account

To invest their OA savings, CPF members will need a CPF Investment Account (CPFIA) with one of three banks – DBS Bank, OCBC Bank or UOB. 

Each member can have only one CPFIA account, which will hold the funds released from his OA.

Members can channel these funds to fixed deposits (FDs), buy government securities like Treasury bills (T-bills), or invest in funds approved under the CPFIS.

Upon maturity of the T-bills or FDs, or when they sell their investments, the funds will go back to their CPFIA.

The money will remain in that account until members instruct the bank to transfer the amount back into their OA.

Any cash balance is also automatically transferred back to members’ OA if their accounts have been inactive for two months. CPF members effectively lose OA interest on money sitting in the CPFIA.

They can also choose to reinvest the money after each issue of their T-bills matures, instead of putting it back into their CPF account immediately. Ultimately, however, all the money must be returned to their CPF account.

Note that using OA funds incurs bank fees of $2.50 plus goods and services tax for each transaction, and a service fee of $2 every three months.

Conversely, CPF members do not need a CPFIA to invest their SA funds. The funds are drawn directly from their SA, and the money is automatically credited back to the SA when the investment is sold or matures.

3. Investing in T-bills

CPF members can consider investing in T-bills, which have maturities of six months or a year.

The six-month T-bills are issued every two weeks, while the one-year T-bill is issued every three months.

Both OA and SA funds can be used to buy T-bills.

Previously, investors had to queue up at the bank to apply for T-bills using OA and SA funds.

Now, DBS customers can apply online using their OA funds, but will still have to submit a T-bill application at a bank branch if using SA funds.

OCBC customers can use OA and SA funds to buy T-bills via the bank’s Internet banking and mobile portals.

UOB customers can apply online to use their OA funds from April 22, but need to go to a bank branch to use SA funds.

It is worth taking the time to weigh the T-bill yields against the loss of CPF interest during the tenure, to decide if the investment is worthwhile.

To illustrate, let’s assume we have a CPF member who is 30 years old and has $30,000 in his OA. He took out $10,000 from his OA at the end of February, and successfully applied for a six-month T-bill on March 2 at a cut-off yield of 3.98 per cent. His T-bill will mature on Sept 5, when the money will go back into his OA.

This money will earn OA interest only from October, as CPF contributions start to earn interest only from the next month. Effectively, the member loses eight months of OA interest – for February to September.

In the above example, he will earn $199 from his T-bills.

But he loses interest on that $10,000 in his OA, which would have netted him $166.67 at 2.5 per cent per annum.

He still gets $32.33 more by putting his $10,000 in six-month T-bills.

Those who are not allocated any T-bills in an auction will not have their CPF funds deducted and will not lose any interest.

4. Investing in fixed deposits

Another option is to put the CPF savings in a Singapore-dollar FD with DBS, OCBC or UOB under the CPFIS.

Members will require a CPFIA for this, and they can hold FDs with banks other than the one they have a CPFIA with.

Foreign-currency FDs are not in the list of CPFIS-approved investments.

5. What else to invest in

CPF members looking for higher returns above the risk-free rate offered by T-bills can consider investing their CPF savings in exchange-traded funds or unit trusts approved under the CPFIS.

Both OA and SA funds can be used to invest, but SA savings cannot be tapped for higher-risk investments.

OA savings can also be used to invest in shares and corporate bonds approved under the CPFIS.

But there is a cap on stock and bond investments – up to 35 per cent of investible savings – known as the stock limit.

Investible savings refer to the sum of the OA balance plus the amount withdrawn for investment and education.