CPF Investment Scheme: What can we invest our CPF Savings in?

For most of us, our Central Provident Fund’s (CPF) main purpose is to aid in payments for our house. And for sure, financing your first home with your CPF is a popular route that many follow.

With sufficient funds in your CPF, you can wind up buying a home without having to pay much cash at all. This allows young couples to have liquid cash on hand at an age where they are generally cash-strapped. It sounds like a big win-win situation… but only if you are considering the short term.

CPF isn’t just for housing, it’s for our retirement too

Many look at using our Ordinary Account (OA) balances to fund the initial payment for our homes because for one, the money is ours anyway, and two, it’ll just be stuck inside the account until you retire.

Moreover, the time from now to retirement is a long way away. When you’re young, it’s easy to believe you have your whole life to save for retirement. But in actuality, many Singaporeans aren’t financially prepared for retirement.

But wait, isn’t CPF already earning high interest risk-free anyway? Isn’t that enough for our retirement nest egg?

Well, yes and no. While CPF does give us decent returns of 2.5% or 4%, as the cost of living rises, the amount of funds needed to secure a comfortable retirement also gets higher. Your retirement savings may be enough… but only just enough to get by.

What is the CPF Investment Scheme (CPFIS)?

Not many know this, but you can actually invest the CPF savings you already have in your accounts.

Investing your CPF savings gives you the opportunity to potentially grow your retirement savings without requiring you to top up more funds (though you can of course do so!).

The CPF Investment Scheme allows us to invest in various financial instruments that will help to beef up that retirement fund. You can choose to invest with your Ordinary Account (OA) or Special Account (SA) balances.

By investing the funds, it might be possible to earn higher returns, which can help you to reach your CPF Full Retirement Sum (FRS) at a much quicker pace and allow you to have a larger pool of retirement funds.

But before you jump into signing up for CPFIS, do understand that any potential returns that you get from your investment goes directly back into your OA or SA (depending on which account you invested with). It’s a way to grow your retirement fund, not to cheat the system.

Who can invest with CPFIS?

Seeing as CPFIS is meant for enhancing the pool you already have, there are selected requirements for you to hit before you can opt in.

If you don’t invest with CPFIS, your CPF OA has a guaranteed interest rate of 2.5% (up to 3.5%) while your CPF SA enjoys an interest rate of 4% (up to 5%). All this is risk-free.

Think carefully before you invest your funds, because although you potentially increase your returns, you also increase the risk of losing your money.

Pertaining to your CPF OA, should you have short-term needs like housing payment, we wouldn’t recommend pooling money from your account to invest in CPFIS.

What can you invest your CPF savings in?

So here comes the juicy part – what can you actually invest in with your CPF savings?

There are actually a wide range of investment products available for you but not all can be invested with both accounts. For some products, there are limits as to how much of your investible savings you can use. (Investible savings = your account balance + whatever you have withdrawn for housing and education.)

You can click here for more details on the individual breakdowns of each type of investment product.

Which insurance products are CPFIS-eligible?

There is a wide range of CPFIS-eligible investment products, but it’s interesting to note that there are three main types you can buy from insurers: annuities, endowment plans and ILPs. You can invest 100% of your investible savings in all three products. 

Annuities

Annuities, sometimes known as retirement plans, are products that pay out a regular stream of income upon retirement, making it a perfect fit for CPF. Unlike other investment vehicles, annuities provide guaranteed income throughout your retirement years, and your capital is guaranteed. The downside is that the returns may not be very high since they are relatively safe.

Endowment plans

Endowment plans are insurance savings plans that help you attain a particular financial goal by growing your premium into a larger sum, which is typically guaranteed. This is a low-risk way to grow your CPF savings, especially since you can opt for longer-term endowment plans (since your savings are locked up for years anyway). Again, check that the returns are good enough to justify the investment.

Investment-linked insurance plans, a.k.a ILPs

ILPs, or investment-linked insurance plans, are insurance policies that combine insurance with investments. Among the CPFIS-eligible insurance products, these have the highest potential returns, but also the highest risk. ILPs use your money to buy unit trusts/funds, and the returns are not guaranteed. Just like any true investment, there is an opportunity to grow your savings, but it comes with the risk of losing your capital (i.e. your hard-earned CPF savings).

Should you start investing your CPF savings then?

The important question to ask, before you start investing your CPF savings, is whether you can beat the guaranteed 2.5% interest rate (for your OA). At the end of the day, we all want our investments to do better than what is already guaranteed and risk-free.

All investment products, under CPFIS or not, are open to risks and costs. One way to ensure that investing in CPFIS will be beneficial is for you to understand that CPFIS is for the long haul. Since you are not likely to need your CPF funds urgently in the short-term, this allows you the luxury of time to grow your savings.

With a balanced portfolio and steady investing over the years, there is a high chance that you’ll be able to enjoy returns that surpass the basic CPF OA rates. However, do your due diligence before you take the plunge.

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How can we help?

Read more:

What we need to know about CPF Investing

Endowment Plans in Singapore

Retirement Plans in Singapore

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