What you need to know before investing your CPF

One of the ways to grow your retirement funds over the long-term is to invest your CPF. Under the CPF Investment Scheme (CPFIS), you can invest your CPF Ordinary Account (OA) and Special Account (SA) balances in various investment products such as stocks, bonds, unit trusts (mutual funds).

By default, the Singapore government guarantees a 2.5% per annum (p.a.) interest for savings in CPF OA, and 4.08% p.a. interest in the Special Account (SA). Note that from 1 April to 30 June 2024, the interest rates for the Special, MediSave, and Retirement Accounts will be 4.05% p.a..

Also, an additional 1% p.a. interest is paid on the first S$60,000 of your combined balance (including up to S$20,000 from your OA).

Having said that, by investing CPF OA and SA you can potentially earn a higher return than the guaranteed interest rates above, which, due to inflation, may not grow your wealth enough for you to retire comfortably.

Here are a few important things about the CPF Investment Scheme (CPFIS) that you should bear in mind before deciding if you should invest your CPF.

Who can invest with CPF?

Since 1 October 2018, new investors need to take the Self-Awareness Questionnaire (SAQ) before you can even start investing via CPF-IS.

Next, you can only invest your savings through the CPF-IS if you have more than $20,000 in your CPF-OA and/or $40,000 in CPF SA. You must also be at least 18 years of age and not an undischarged bankrupt.

How much can I invest with CPF?

After setting aside the minimum amount in your OA and/or SA, you can invest 100% of your investible savings in unit trusts, up to 35% in stocks and up to 10% in gold. If you want to check your investable amount, you can login to your CPF account here and go to My Statement > Section C to check.

What asset classes can I invest in?

Through the CPFIS, CPF members can use their CPF monies to invest in CPF-approved stocks and bonds, which are listed in SGX, unit trusts/mutual funds, fixed deposits, and even investment-linked products (ILPs).

Can I withdraw my CPF investment return?

Any gains you make in your investments using funds from your CPF accounts will be returned to your CPF accounts(after fees) and can only be withdrawn when you reach 55 years old. For example, if you invest $10,000 into a stock today using your OA funds and sell it for $12,000 a year later, the entire amount, inclusive of profits, will be returned to your CPF account. This means that every investment which is made from your CPF account is really for your future-self.

Similarly, any dividends or interest you receive on your CPF-IS investments will be channelled to your CPF accounts rather than be paid out to you. These funds can then be used to make further investments if you wish.

Should I invest in CPF? Investment factors to consider in decision-making:

1. Your investment period

CPF currently pays 2.5% interest on savings in your CPF-OA. There is an extra 1% interest paid on the first S$60,000 of your combined balance (including up to S$20,000 from your CPF-OA). These are essentially risk-free returns guaranteed by the government, so if capital preservation is your primary concern, especially if you intend to make use of your CPF OA for housing/educational purposes in the next 3 years then you are encouraged to keep your money in your CPF OA.

We believe in the power of the markets and long-term investing, and that over a long time period your investment portfolio has a high probability of performing better than the guaranteed interest rates in your CPF account, especially if you are investing in a diversified, low-cost manner.

2. Your risk tolerance

As an investor, it's important that you consider the risk-return trade-off that you are taking on. Since interest earned in your CPF accounts are essentially risk-free and guaranteed by the government, one should expect higher returns when investing elsewhere. At the same time, you should carefully consider how much additional risk you are taking on in order to earn this higher return elsewhere.

Investing in securities such as individual stocks, bonds, ETFs and unit trusts come with a higher level of risk and volatility compared to leaving your money in your CPF. Make sure you do your own due diligence before you invest your CPF funds, and choose an investment portfolio that is appropriate for your risk tolerance and investment goals.

Remember, the risk-return trade-off is something which you should be comfortable accepting before you invest.

3. Investment fees

Watch out for investment fees as well. Most investment instruments you can invest in will charge some form of fees. These include sales charges, management fees, wrap fees and brokerage fees. As mentioned in a previous article we wrote, even a 1% difference in fees can amount to a significant cost over the long-run. This is in contrast with keeping your funds in your CPF account, which incurs no additional fees.

Final thoughts

Overall, when investing through the CPFIS, it makes sense to take a long-term approach. Over time, markets display efficient characteristics and investors are rewarded commensurately for the risks that they take. We believe it's time in the markets that will give you the highest probability of success in growing your wealth over the long-term.

Endowus can help you curate a personalised CPF investment portfolio adjusted to your needs and risk tolerance. Invest in your future; learn more here. To start investing your CPF with Endowus, click here.

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Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus Singapore Pte. Ltd. (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.