Can your CPF savings keep up with high inflation?

The recent price jumps in daily necessities such as electricity, food and transportation have made Singaporeans jittery about the value of their savings and wealth. While inflation rates in Singapore have stayed at elevated levels, savings account rates at banks remain low. 

As many Singaporeans have substantial CPF savings relative to cash, one burning question may be this: Are my CPF savings able to keep pace with the stubborn inflation?

Singapore’s inflation rate through the years

Based on data provided by SingStat, the Consumer Price Index (CPI) in Singapore has increased steadily over the past 50 years.

To learn more about what's driving inflation higher in Singapore, follow this link.

There are many ways that your CPF monies can maintain its purchasing power, even against periods of high inflation.

Here are some ways for you to use CPF more effectively against inflation.

Three ways your CPF savings can keep up with inflation

1. Make use of CPF higher interest rates, with more interest

CPF interest rates for the Ordinary Account (OA) and Special Account (SA), as of May 2022, stood at 2.5% and 4% per annum (p.a.) respectively.

In March 2024, it was announced that from 1 April to 30 June 2024, the interest rates for the Special, MediSave, and Retirement Accounts will be 4.05% per annum.

On top of these rates, CPF pays an extra 1% p.a. interest on the first $60,000 of your combined balances, which is capped at $20,000 for OA. CPF members who are 55 years old and above will also get an extra 2% p.a. interest on the first $30,000 of their combined balances (capped at $20,000 for OA), and an extra 1% p.a. on the next $30,000.

Younger CPF members with low CPF SA and MA balances may want to do a transfer between CPF OA to SA so that they are not only enjoying a higher CPF interest rate of 4.05% p.a., but are also getting an additional 1% p.a. from more interest.

2. Choose CPF LIFE Escalating Plan

You can choose between three different CPF LIFE Plans from the age of 65 to 70 before you receive your payouts. The plans are namely the Standard, Basic and Escalating Plans. The Escalating Plan, in particular, allows you to receive monthly payouts that increase by 2% annually. This can allow your monthly income from CPF to keep up with increasing prices. Such information can be accessed through the CPF LIFE estimator.

The trade-off from choosing the Escalating Plan over the Standard Plan is that the initial payout you receive will be lower. For CPF members who prefer to start off with the same monthly CPF payout, use the CPF LIFE estimator to determine how much more you would need in your CPF Retirement account if you choose the Escalating Plan. In the example shown below, you will need $247,000 in your CPF Retirement account for you to have the same starting monthly payout. 

Read more: What you should know about CPF before hitting 55 years old

Invest your CPF in growth assets

Generally, in an inflationary environment, property investments have historically been viewed as a good inflation hedge. Property values over the long term tend to continue growing steadily, and may also provide potential recurring income for investors.

Between April and June 2023, CPF members withdrew about S$3.9 billion from their Ordinary Accounts for home ownership (for HDB flats and private properties). For the whole of 2022, the net amount of OA savings withdrawn for housing grew about 42% year on year to hit S$8.2 billion.

However, with the threat of rising interest rates and expected slow economic growth, mortgage rates are on the up. The current Total Debt Servicing Ratio (TDSR) — a regulatory limit set to ensure that borrowers are not over-leveraged for property purchases — is set at a cap of 55%, as of August 2023.

Other than property investments, consider investing your CPF OA balances in equities instead. The CPF Investment Scheme (CPFIS) provides a list of growth assets, such as SGX-listed stocks, ETFs, and equities-related unit trusts that you can invest in to grow your CPF savings ahead of the inflation rate.

Given that a significant portion of our wealth sits in our CPF and property, consider investing globally through CPFIS-approved funds — also available through Endowus — for diversification purposes. To better understand why and how homeowners should invest their CPF savings amid rising property prices, click here.

Get started on managing your CPF savings better today. To learn how to begin your investment journey, watch the replay of our webinar with CPF Board. If you're ready to invest, learn about Endowus' options when it comes to CPF investments. Being invested helps to grow your wealth over time, and can make a big difference to your CPF money.

Next on the Endowus Fin.Lit Academy

Read the next article in the curriculum: Tax relief: How to reduce your income tax through CPF and SRS top-ups

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