The first thing to get out of the way is probably the number in the title- yes, it’s not 3.88% which is what most readers would have expected. I will explain that later in the blogpost on my unfortunate timing. On 1 March 2023, I proceeded to invest a decent chunk of my excess funds in CPF Ordinary Account (‘OA’) into a time deposit (fixed deposit) at 3.55% for a 5-month tenure. I will share my thought process and some tips on how you can avoid the long queues at the OCBC branches in this article.
Pros and Cons of investing your CPF OA at 3.55%
The only advantage of investing my CPF OA funds at 3.55% is to improve on its current yield. As the funds in CPF OA earns 2.5% p.a., the differential interest margin is 1.05%. I am ignoring the additional 1% interest on the first $60,000 combined balances in CPF because the amount that I have earmarked for this investment falls outside of this range.
Let us illustrate with a hypothetical example to better understand this in terms of absolute figures.
As shown in Diagram 1, the net gain of investing vs doing nothing is $229 ($1,479 – $1,250) assuming a lump sum investment of $100,000 in CPF OA funds. This difference is before a transaction fee, which is insignificant at a couple of dollars. You might have noticed that I used 6 months instead of 5 months when computing the interest earned under the “DO NOTHING” scenario. That is because CPF balances used for interest computation are affected by transactions in your account. Any withdrawal in this month will not earn interest from this month onwards while any contribution received this month only start earning interest next month. Therefore, we buffer for 1 month of “lead time” for the funds to leave CPF OA into the CPF Investment Account and then back into the CPF OA again. Since I went to OCBC branch on 1 Mar, the deduction took 1 business day as shown in Diagram 2.
In short, when the funds are moving here and there, they do not earn interest. If you want a detailed explanation, you may refer to CPF’s FAQ on its website.
- The biggest disadvantage is illiquidity as commonly associated with fixed deposit. Since this is for a 5-month tenure, whatever amount I have set aside will be locked up during that period. Since the Minimum Occupation Period (‘MOP’) for my HDB flat is only due in early 2024, I should have no use for the funds in my CPF OA in the near term.
- Another disadvantage to consider is opportunity cost. If I decide to invest my CPF OA funds into an instrument that yields a guaranteed 3.55%, it means that any other investment instruments in the next 5 months that may potentially yield a higher return would have to be forgone. As we cannot predict with 100% accuracy on Fed’s next move, who is to say that OCBC will not dangle a higher return in the next few months? I will feel hurt of course.
At the time of this article, investing CPF OA funds into OCBC’s time deposit is a task that can only be done at their branches although they are trying to roll out this service online soon. Therefore, let me tell you the step-by-step procedure so that you do not spend more than 30 mins at the branch, including waiting and processing time.
How To Invest CPF OA into Fixed Deposit At OCBC Branch
Step 1: Take a queue number from the comfort of your home
To take a queue number without going to the branch first, simply log into your OCBC mobile app.
OCBC Digital Mobile App> More > Easy Q as shown in Diagram 3
From EasyQ, select the branch and the type of services that you are interested in. Thereafter, you will be given a queue number as shown in Diagram 4.
Step 2: Get your CPF Investment Account ready
My CPF Investment Account is with DBS and I managed to retrieve the account number prior to my appointment. If you do not have a CPF IA, not to worry as it can be opened on the spot at OCBC.
Step 3: Get your OCBC Fixed Deposit Account ready
I do not have an existing fixed deposit account with OCBC and opened it at the branch. Process was expedited with the use of Singpass MyInfo.
Step 4: Confirm the investible amount in your CPF Ordinary Account
To confirm the investible amount in your CPF OA, you can log in online to your CPF account to check. Note that you have to set aside a minimum of $20,000 in your CPF OA that cannot be transferred into your CPF IA. Think of this $20,000 as a safety net for those who are using OA funds to pay for their mortgage.
Once you have prepared Steps 1 to 4, what is left is simply signing the paperwork at the branch. Notice that Steps 2,3 and 4 can be done even before Step 1!
Upon its maturity, you would need to instruct the bank that you opened your Investment Account with to refund the principal and interest back to your CPF OA. This completes the whole cycle of investing your CPF OA funds in OCBC time deposit.
Timing wise, I was extremely unlucky. I walked into the OCBC branch thinking that I would be getting an interest rate of 3.88%, which was higher than the T-bill then. To my horror, I discovered that 3.88% for a 8-month tenure was the interest rate offered for the month of February. I was 1 day late and the promotion had lapsed. Not sure if it was a case of sunk cost fallacy, I reluctantly proceeded to place my OA funds into a 3.55% 5-month time deposit with OCBC.
To compound my misery, 6-month T-bill closed at 3.98% (cut-off yield) the next day! I cursed myself at having lost out on a couple of hundred dollars. To console myself, I know that I am better off than those in the “do nothing” scenario.
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