Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Friday, 18 August 2017

Save with CPF or Save with Fixed Deposits?

This post will contain a tip on how to increase your CPF returns, namely in the form of interest.
One way to earn more interest from CPF is to transfer your extra money, into your CPF Special Account.

The choice between CPF or Fixed Deposits is determined by how much flexibility you want.

The less flexible the option, the higher the interest.
Your Ordinary Account (OA) currently earns 2.5%, Special Account (SA) and Medisave Account (MA) earns 4% interest while your normal bank Fixed Deposit (FD) earns less than 2% annually.

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If you want to be able to touch the money (to spend or to do other things), putting it in a Fixed Deposit ensures that you will be able to use the money when the situation arises. 
Of course, this would mean you will be getting a lower interest.

But if you are confident that you do not want/need to touch the money and would like it to grow faster, depositing it into your CPF account makes sense and cents (many cents).
In addition, you will get tax relief if you top it up into your SA or Retirement Account (RA), which reduces the amount of tax you pay, double win!
The interest on your SA is double that of your FD. This works even better as you get older and approaches 55 because you are closer to the age you can withdraw money in your CPF accounts.

Real Life Example:
My mum is 48 this year. She wanted to buy a 10-year Fixed Deposit which gives less than 3% per year. I suggested that she put her money into her CPF to earn the CPF interest.

Based on her current age, she can put $7,000 into her SA and earn a 4% interest. She will be able to withdraw $5,000 when she reaches 55 years old in 7 years, or any amount in excess of her Full Retirement Sum (FRS).

Of course, if my mum fails to meet her FRS, the money that goes into her CPF will not be returned to her at the "end of the maturity" - instead, she will get it as future monthly payouts via CPF LIFE.
But there will be other factors to consider and there will be ways to withdraw the money out, which will be explained in future posts.
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All in all, if you wish to have a higher interest rate than Fixed Deposit and risk-free, you can consider putting your money into your CPF, especially if you are near 55 years old - where the risk-return profile is more skewed in your favour.

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?

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  1. I spoke to a CPF officer on phone and says top up amounts to SA are ring fenced for retirement and as such , will not be part of withdrawal amount when one reaches 55 but will stay in your RA until 65 to be paid as as CPF Life. I'm still trying to get clarification from another source . If anyone knows better , pls chime in.

    1. Hi. Yes. The money top up to your SA under the Retirement Sum Top Up Scheme is not withdrawable once it is inside. Except "withdrawal" via CPF LIFE's monthly payout