CPF or Singapore Savings Bond? It is a no brainer.

Regular readers know that I have been doing voluntary contributions to my CPF account every year.

I consider the CPF a special investment grade bond that is risk free and volatility free while paying relatively attractive coupons of 2.5% and 4%.

The plan was to continue doing maximum voluntary contributions till I turn 55.

In my age bracket, a bigger percentage of my voluntary contribution would go to my SA which enjoys a 4% interest rate.

Approximately, 31% of my voluntary contribution would go into the SA while the rest goes into my OA.

What about the MA?

My MA is usually maxed out while my SA has already exceeded the Full Retirement Sum (FRS) and, so, what is supposed to go into my MA would flow into my OA instead.

However, with interest rates rising, I have been keeping an eye on the Singapore Savings Bond.

The effective interest rate for my voluntary contributions to my CPF account for the next few years is about 3% per annum which is an averaging of the interest rate for the OA and SA by contribution proportion.

It is a no brainer that if I am able to get more than 3% from another risk free and volatility free instrument, it would trump the CPF even for my age bracket.

SSB is now offering 3.21% per year.

Even if we were to hold for only 1 year, it will pay 3.08%

So, I will be applying for the SSB closing on 26 Oct for a sum of $38,000 or a rounding up of $37,740  (i.e. the CPF annual contribution limit) which has been earmarked for voluntary contribution to my CPF account in the new year.

As I expect the level of interest in this SSB to be rather high, my application is probably only going to be partially filled.

In such an instance, I will use the refunded money for future SSB applications if the coupons remain higher than 3%.

Again, what about the MA?

The plan is still to do a top up to my MA in the new year to hit the new Basic Healthcare Sum (BHS) as that enjoys a 4% interest rate.

However, if the SSB coupon should exceed 4% before then, I will channel the money earmarked for my MA to the SSB instead.

So, it seems that I will either be making a smaller contribution to my CPF account in 2023 or not at all.

The big picture really has not changed.

I am still growing the risk free and volatility free investment grade bond component of my portfolio.

However, the interest earned in the SSB is not retained and compounded unlike the CPF.

I must be prudent and put the interest earned to work and not consume it.

So, CPF or Singapore Savings Bond?

Same, same but different.

References:
1. https://singaporeanstocksinvestor.blogspot.com/2022/01/2022-cpf-top-up-and-voluntary.html” target=”_blank” rel=”noopener”>2022 CPF contribution and top up.
2. https://singaporeanstocksinvestor.blogspot.com/2022/01/almost-11m-in-cpf-savings.html” target=”_blank” rel=”noopener”>$1.1m in CPF savings!