As T-bill interest rates rise, more are investing their CPF savings in them. Should you do the same?

As T-bill interest rates rise, more are investing their CPF savings in them. Should you do the same?


While the need to visit a bank makes it less convenient, financial experts say it may be worthwhile with yields on T-bills surpassing the base interest rate of 2.5 per cent that the CPF Ordinary Account offers.

“I think that it is a good idea to consider putting one’s CPF Ordinary Account funds into T-Bills given that the rates are now higher,” said Providend’s senior client adviser Tan Chin Yu.

As they are backed by the Singapore Government, T-bills can be considered a safe investment option, he added.

That said, there are other factors to be considered before investors make the move.

Like all investments, the key is to understand one’s time horizon or how many years before one needs the funds for other purposes. Also consider the investment’s liquidity, meaning how fast the invested capital can be accessed if needed.

“While T-bills are short-duration instruments, investors should still expect to not touch the monies within the next six to 12 months,” said Mr Tan.

“If they require the funds in the short term – either to buy a property or to withdraw for those above 55 years old – then it is better to maintain the funds in their CPF Ordinary Accounts, instead of investing.”

This is because while T-bills are tradable debt securities and there are no penalties for liquidating before maturity, there is still an interest rate risk.

In general, bond prices and interest rates move in opposite directions so if interest rates rise, bond prices will fall and vice versa. This means that in an environment of rising interest rates, investors may not be able to get back the full amount they invested if they sell their T-bills before maturity.

Apart from market risk, liquidity could also be an issue if there are few interested buyers, experts said.

Another consideration is the extra interest offered to CPF members until the end of the year, as part of the Government’s efforts to enhance the retirement savings of Singaporeans.

Those below 55 years old can earn an extra 1 per cent on the first S$60,000 of their combined balances, with a cap of S$20,000 for Ordinary Account funds.

For those aged above 55, an extra 2 per cent interest will be paid on the first S$30,000 of their combined balances, with Ordinary Account funds capped at S$20,000.

Investors should make sure they have these minimum balances in their CPF accounts before investing, said Mr Victor Wong, director of wealth management at Financial Alliance.

There are also opportunity costs that come with the investing of CPF Ordinary Account funds, such as losing out on the CPF interest earned.

In the case of investing in a six-month T-bill, one could lose more than six months of CPF interest on the invested funds because no interest would be earned in the months where there are withdrawals or contributions, Mr Wong said.

Take for example the T-bill auction in end-October, an investor would have had to submit a bid before the auction date on Oct 27. The T-bill was issued on Nov 1 and will mature on May 2, 2023 – a total of 8 months from application to maturity.

There are also fees to be paid.

Agent banks charge a one-time fee of S$2.50 for each transaction, as well as a quarterly S$2 service fee per counter. This means that a T-bill investment using one’s CPF Ordinary Account will incur total fees of S$6.50, inclusive of Goods and Services Tax.

Using the same October T-bill as an example, an investor who put in S$10,000 will earn a return of S$208.90 based on the cut-off yield of 4.19 per cent. On the other hand, the same investor is forgoing about S$166.67 in interest if the funds were left in the CPF Ordinary Account.

“Add in the transaction fee of S$6.50, the excess interest earned is S$35.73 for every S$10,000,” said Mr Wong.

“Hence, you must also (decide) whether this extra S$35.73 per S$10,000 is worth your time (going to a bank) to apply in person. Of course, the extra interest earned will get higher if the yield on T-bills continues to climb,” he added.

Mr Aaron Chwee, head of wealth advisory at OCBC Bank, flagged the possibility of over-subscription in the upcoming T-bill auctions, given how the higher yields are likely to attract more investors.

“Investors should be prepared for such disappointments,” he said.