CPF Accounts Value Thread 2022

[BBCWatcher]

My intention is only to put inside my OA for 4 more years, then clear my housing loan in one shot when my lock-in expires. SSB for 4 years is about 2.47%, which is around the CPF 2.5%. I'm also refunding $4k on a monthly basis, so the transaction cost will be a disadvantage for SSB.

Understood, but OA isn't liquid except for housing. You've lost this bet if you need the cash for other purposes (you might!), you've lost this bet if interest rates go up (you can recycle into even higher yielding SSBs and/or other vehicles), AND you've lost this bet if mortgage interest rates go down (or stay low) and you end up refinancing/repricing to ride along with higher interest SSBs (and/or other SGSes) for more profit. And OA isn't quite 2.5% because it's based on lowest monthly balance computations, plus there's no reinvestment opportunity to boost yield since the 2.5% already includes that. (SSBs throw off interest payments that you can/should reinvest, so the effective yield is higher than 2.47% on a 4 year hold. The 2.47% yield doesn't include interest reinvestment.) AND you're shutting down (or reducing) one of your avenues to inject dollars into CPF if/when OA at 2.5% ever becomes comparatively attractive again.

I still agree with Dork32. You're better off with SSBs right now for this scenario.

 

[BBCWatcher]

Let's use some real numbers on a 48 month (4 year) hold, using the currently offered (July 1, 2022) SSB. We'll assume $4,002 as the deposit amount, and we'll assume you get your full $4,000 SSB (safe assumption, I think).

For OA you get the straight 2.5% p.a. interest compounded annually. Deposit $4,002 on June 30 (PayNow QR) and you end up with $4,417.46 after 48 whole months. That's total interest of $415.46. [OK, true, CPF only credits interest annually (on December 31), so you can't actually tap all of this $4,417.46 after 48 whole months. But we'll pretend that detail isn't true for now.]

OK, now let's look at the SSB. You deposit $4,002 on June 26 and you get this flow of interest payments (approx. dates):

January 2, 2023: $33.80
July 2, 2023: $33.80
January 2, 2024: $53.00
July 2, 2024: $53.00
January 2, 2025: $56.00
July 2, 2025: $56.00
January 2, 2026: $56.00
July 2, 2026 (redemption, so with the $2 redemption fee): $54.00

Total net interest = $395.60

But we're not done. Now let's reinvest the interest along the way. Let's just take the SSB interest and plow it right into CPF OA for 2.5% p.a.:

$33.80 * 2.5% p.a. * 42 months = $36.85
$33.80 * 2.5% p.a. * 36 months = $36.40
$53.00 * 2.5% p.a. * 30 months = $56.37
$53.00 * 2.5% p.a. * 24 months = $55.68
$56.00 * 2.5% p.a. * 18 months = $58.11
$56.00 * 2.5% p.a. * 12 months = $57.40
$56.00 * 2.5% p.a. * 6 months = $56.70
$54 (redemption)

Total adjusted interest = $411.51
Difference = $3.95

Would *I* accept the significant liquidity restrictions (on principal in this case) in exchange for $3.95 of interest after 48 months? When I've basically picked the worst case outcome for the SSB? No, *I* would not. And the $3.95 isn't quite right either, not from a cashflow point of view. With the SSB scenario there's only about a buck of interest that not tappable (pending December 31 annual crediting). With the pure OA scenario the whole last 6 months of interest is untappable (waiting for December 31 annual crediting). If you're going to pay your mortgage at mid-year (48 months from now) then you actually have a few more dollars available to do it in the SSB+reinvested interest scenario.

Make sense?

 

[BBCWatcher]

You could fine tune my example a bit, but I think the basic point is well illustrated. For example, you could "batch up" your SSB buys into $8,002 installments every 2 months and see how that math works. Then you save a little on the transaction fees (relative to principal), and you also have a pretty good idea what the August 1, 2022, SSB's interest rate schedule will look like to decide if it's attractive enough to wait.

But either way, I really think the SSB is the better move (between these two particular options) right now for the scenario you describe.

 

[andyhtc]

Good S-REIT annual dividend more than 4% now.
Equity with risk, so learn and research first before buying any.

Coffin money. Cannot afford to lose.

i would rather max out the ssb at current rates than do housing refund

SSB will be all over the places if bought in batches.

CPF OA is a consolidated platform. It is easier to motivate myself to save up more for my coffin money.

Unless SSB hits 3%...

Target to hit 1M at 48 in my CPF.

 

[Andrew833]

Coffin money. Cannot afford to lose.



SSB will be all over the places if bought in batches.

CPF OA is a consolidated platform. It is easier to motivate myself to save up more for my coffin money.

Unless SSB hits 3%...

Target to hit 1M at 48 in my CPF.

Investing is a key to grow your money. CPF OA only 2.5%

 

[item2sell]

Coffin money. Cannot afford to lose.



SSB will be all over the places if bought in batches.

CPF OA is a consolidated platform. It is easier to motivate myself to save up more for my coffin money.

Unless SSB hits 3%...

Target to hit 1M at 48 in my CPF.

do you have a way to track your funds?

I am using a simple Google sheet to keep track of my funds.

every end month I update it once.

 

[andyhtc]

do you have a way to track your funds?

I am using a simple Google sheet to keep track of my funds.

every end month I update it once.

No, I don't. I just buy local bank shares when the share prices are low and keep them for dividends. I don't like to monitor constantly because the values go up and down very fast and they will affect my mood.

 

[limster]

No, I don't. I just buy local bank shares when the share prices are low and keep them for dividends. I don't like to monitor constantly because the values go up and down very fast and they will affect my mood.

Good strategy! Power of CD! Definitely better to buy stocks cheap when they are are undervalued rather than overvalued!

 

[Nofear40]

Coffin money. Cannot afford to lose.



SSB will be all over the places if bought in batches.

CPF OA is a consolidated platform. It is easier to motivate myself to save up more for my coffin money.

Unless SSB hits 3%...

Target to hit 1M at 48 in my CPF.

Coffin money. Cannot afford to lose.



SSB will be all over the places if bought in batches.

CPF OA is a consolidated platform. It is easier to motivate myself to save up more for my coffin money.

Unless SSB hits 3%...

Target to hit 1M at 48 in my CPF.

I thought you can log into cdp account to see the consolidation?

 

[andyhtc]

I thought you can log into cdp account to see the consolidation?

SSBs are visible in CDP? That will be nice. I will consider the August release.

 

[reddevil0728]

SSBs are visible in CDP? That will be nice. I will consider the August release.

yea. cause it goes into CDP. u need CDP to apply

 

[cscs3]

My intention is only to put inside my OA for 4 more years, then clear my housing loan in one shot when my lock-in expires. SSB for 4 years is about 2.47%, which is around the CPF 2.5%. I'm also refunding $4k on a monthly basis, so the transaction cost will be a disadvantage for SSB.

Also, fo not forget in CPF account. Interest rate is compounded. Ie you earn interest to the interest earn last year. For SSB, interest earned is credited yo your bank account.

 

[dork32]

Also, fo not forget in CPF account. Interest rate is compounded. Ie you earn interest to the interest earn last year. For SSB, interest earned is credited yo your bank account.

actually the irr of cpf and ssb is the same provided the interest is the same.

you can take the ssb interest and combine it with more cash and buy more ssb. that would be compounding.

take an example of 100k at 2.5%

if ssb gives 2500 a year for the next 10 years. at the end of it you get back you principal, that would give an irr of 10%
if ssb does not give any coupon, at the end of 10 years, you at 125k, the irr would be less than2.5%

the interest of ssb is given to you. you can take it and go happy happy. the interest of cpf is locked up, it is only right that they pay interest for it.

 

[cscs3]

actually the irr of cpf and ssb is the same provided the interest is the same.

you can take the ssb interest and combine it with more cash and buy more ssb. that would be compounding.

take an example of 100k at 2.5%

if ssb gives 2500 a year for the next 10 years. at the end of it you get back you principal, that would give an irr of 10%
if ssb does not give any coupon, at the end of 10 years, you at 125k, the irr would be less than2.5%

the interest of ssb is given to you. you can take it and go happy happy. the interest of cpf is locked up, it is only right that they pay interest for it.

SSB option os not unlimited. The interest rate also goes up and down nase on market.

 

[cscs3]

actually the irr of cpf and ssb is the same provided the interest is the same.

you can take the ssb interest and combine it with more cash and buy more ssb. that would be compounding.

take an example of 100k at 2.5%

if ssb gives 2500 a year for the next 10 years. at the end of it you get back you principal, that would give an irr of 10%
if ssb does not give any coupon, at the end of 10 years, you at 125k, the irr would be less than2.5%

the interest of ssb is given to you. you can take it and go happy happy. the interest of cpf is locked up, it is only right that they pay interest for it.

I do have SSB and I can find a big different in term of interest payout. You can use a spreadsheet to compare.

 

[dork32]

I do have SSB and I can find a big different in term of interest payout. You can use a spreadsheet to compare.

this is because you assume you put the interest received from your ssb under your pillow.

 

[dork32]

you are not making an apple to apple comparison.

instead of putting your ssb interest under the pillow, you use it to pay back your cpf oa. you will realize that the return for ssb is higher.

this is a fairer comparison. afterall, in cpf oa, you are not allowed to use the interest

 

[cscs3]

you are not making an apple to apple comparison.

instead of putting your ssb interest under the pillow, you use it to pay back your cpf oa. you will realize that the return for ssb is higher.

this is a fairer comparison. afterall, in cpf oa, you are not allowed to use the interest

It all depend on the age group you are in. Not to forget even you are not 55. The interest continue to earn interest on top of it. Is compounded.

Off course, if you are looking for flexibility or short term and you are not yet at 55. SSB could be a safe choice.

Just use a spread sheet, put in 100K and project it for 10 years. You will know the different.

 

[andyhtc]

you are not making an apple to apple comparison.

instead of putting your ssb interest under the pillow, you use it to pay back your cpf oa. you will realize that the return for ssb is higher.

this is a fairer comparison. afterall, in cpf oa, you are not allowed to use the interest

The catch is SSB only starts paying comparable interest rates to CPF OA from the 4th or 5th year for the latest batch.

I simulated the CPF OA and July 2022 SSB annual and total 10-year returns. Currently, the CPF OA is slightly superior compared to the SSB.

 

[dork32]

both of you dont get me.

cpf earn interest, interest is compounded coz you cannot use it

ssb earn interest, interest is not compounded because you can use it. so use it to earn interest. how ? put it into cpf oa and let earn interest.

which is better?