CPF Accounts Value Thread 2022

[andyhtc]

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?

I simulated using your method of transferring SSB interest to CPF OA. CPF is still very slightly better than the latest batch of SSB. The situation may change if SSB hits around 2.9% over 10 years.

 

[BBCWatcher]

I simulated using your method of transferring SSB interest to CPF OA. CPF is still very slightly better than the latest batch of SSB. The situation may change if SSB hits around 2.9% over 10 years.

"Better" in what sense? OA is not more liquid. SSBs are practically as good as cash and better protected than cash. (You can tap them partially or fully within a maximum of 5 weeks.)

Also you have to hope that SSB rates don't rise, because SSBs can be recycled into higher interest rate versions of themselves. Can't do that with OA. The OA interest rate of 2.5% is a LONG way from rising because it's pegged to a much lower market interest rate than the SSBs are.

On top of all that OA deposits are an exhaustible, finite resource. At some point in the future when 2.5% becomes comparatively attractive again you could be very happy to have more room to deposit dollars into OA. You can't do that if you've already done it.

I just would not be taking "very slightly better yield (if SSB interest rates don't rise)" in exchange for these disadvantages. It doesn't make sense to me.

 

[dork32]

i did a simulation
at the end of 10 years, if you put in 10k at the start

with cpf you have 12800
with ssb at this month (2.53) rate and interest into cpf oa you hav 12838

if you use next month interest (2.71)
ssb you have 13011

 

[dork32]

I simulated using your method of transferring SSB interest to CPF OA. CPF is still very slightly better than the latest batch of SSB. The situation may change if SSB hits around 2.9% over 10 years.

you probably missed 1 payment

 

[BBCWatcher]

Results may vary with shorter holds, but even at a 4 year hold the current SSB is looking comparatively more attractive overall (IMHO). We're also going to get some SGS interest rate data in the next 2 weeks, so sit tight if you're still on the fence. This particular decision could be even easier next month.

I don't necessarily think it's only "SSB (depositing interest into OA) v. pure OA" by the way. There are many other potential savings vehicles. But the bottom line is that I wouldn't be in any rush to inject funds into OA given the available alternatives. (A few months ago, different story perhaps.)

 

[andyhtc]

you probably missed 1 payment

My timeframe is quite short at around 4 years for now as I intend to use the returned OA to fully pay off my house in 4 years. So SSB is not for me yet

For those with a longer time horizon of 10 years, SSB makes sense for the latest batch now with great flexibility in withdrawal.

SSB returns are too low in this inflationary environment. I will go straight for higher returns from shares and a business venture after reaching financially independent status.

 

[BBCWatcher]

My timeframe is quite short at around 4 years for now as I intend to use the returned OA to fully pay off my house in 4 years. So SSB is not for me yet

Wait 2 weeks for another ~10 days of SGS interest rates. This particular decision is a near end of month decision, not an 11th day of the month decision. But as I illustrated upthread with a "pure OA" approach (v. SSB/deposit interest in OA) you would only eke out a couple more dollars of interest on a 4 year hold. And you'd actually have less housing-liquid money available for a mid-year pay off due to the quirky way OA credits interest (only on December 31 each year). I would NOT take that deal (pure OA); that's a bad deal. You shouldn't try for a couple speculative dollars of additional interest in exchange for OA's liquidity constraints — bad trade.

And why are you necessarily going to pay off your home in 4 years? You wouldn't/shouldn't if mortgage interest rates are comparatively low then. You don't know that you're going to do that, at least not if you're financially sensible.

 

[dork32]

My timeframe is quite short at around 4 years for now as I intend to use the returned OA to fully pay off my house in 4 years. So SSB is not for me yet

For those with a longer time horizon of 10 years, SSB makes sense for the latest batch now with great flexibility in withdrawal.

SSB returns are too low in this inflationary environment. I will go straight for higher returns from shares and a business venture after reaching financially independent status.

you are using your own personal situation to evaluate ssb. ssb is meant to be held to maturity. the interest at the tail end is much higher than the front. it is very unfair you put ssb down this way.

it is like saying the interest of endowment plan is much lousier than dbs savings. people will say ???. yeah i need the money in 2 years, the return for endowment plan for 2 years is -100%. same thing endowment plan is meant to be held to maturity. if it is held to maturity, confirm it is better than dbs savings.

 

[dork32]

My timeframe is quite short at around 4 years for now as I intend to use the returned OA to fully pay off my house in 4 years. So SSB is not for me yet

why do you have to redeem you loan in 4 years?

if the loan is lousy, then redeem it now.

if the loan is good, forever also dont redeem

 

[andyhtc]

why do you have to redeem you loan in 4 years?

if the loan is lousy, then redeem it now.

if the loan is good, forever also dont redeem

Peace of mind and prepare to move to the next phase of life.

The loan interest rates could be returning to 3-4% soon and hold there for many years.

 

[andyhtc]

Retirement Sums up to 2027:

https://www.cpf.gov.sg/member/faq/r...hat-are-the-retirement-sums-applicable-to-me-

 

[BBCWatcher]

The loan interest rates could be returning to 3-4% soon and hold there for many years.

You only loosely prepare for that decision now. You don't actually make that decision until 4 years from now. Maybe interest rates will be higher, maybe they'll be about the same, maybe they'll be lower. In 2 out of 3 of those cases you'd be a "damn fool" to pay off a mortgage any earlier than required using OA dollars earning 2.5% or SSBs purchased now.

 

[dork32]

Peace of mind and prepare to move to the next phase of life.

The loan interest rates could be returning to 3-4% soon and hold there for many years.

it is good to have a plan to mitigate the high interest rate.

but you do not need to have 0 debt to have peace of mind, to move into the next phase of life

 

[BBCWatcher]

it is good to have a plan to mitigate the high interest rate.
but you do not need to have 0 debt to have peace of mind, to move into the next phase of life

Here's a quick financial awareness test. Which is better? (All other circumstances are identical, please note.)

1. $400,000 in your CPF Ordinary Account with a $350,000 mortgage balance at a 2.2% interest rate.

2. $50,000 in your CPF Ordinary Account with no mortgage.

If you picked Option 2, you're wrong. Option 1 is increasing your wealth every month as long as the 2.2% interest rate (or some other comparatively low rate) endures. Or, in short, Option 1 is a money printing machine for you. Why would you ever want to turn off your money printing machine any earlier than required? You wouldn't/shouldn't, not if you're rational.

OK, here's another scenario:

1. $400,000 in your CPF OA with a $350,000 mortgage balance at 2.8%.

2. $50,000 in your CPF OA with no mortgage.

Which is better? THAT'S a more interesting question, but the correct answer is "not enough information." Suppose I told you that the owner of this home (and mortgage payer and CPF OA owner) has a terminal illness and the Home Protection Scheme (or other MRTA policy). Now the clearly correct answer is Option 1. That's because the HPS/MRTA will soon pay off the rest of the mortgage when the individual dies. Any/all accelerated repayment will be completely wasted, lost forever, so that'd be a terrible financial decision. Another possibility is that mortgage interest rates are headed down, and so the mortgagee rationally decides to ride out the 2.8% rate until he/she can reprice/refinance (perhaps for a fixed term of as many as 5 years) and get back into money printing mode. There are also some edge cases involving creditors/court judgments. CPF OA is protected against such risks, but home equity is not. So "it depends." The rate differential suggests accelerated repayment has some merit, but there are exceptions in this scenario.

 

[dork32]

bbc, i am aware of this. i am definitely on option 2 under the first scenario.

if it is the second scenario, i will definitely redeem the loan for 2 reasons.
a. i dont see myself dying anytime soon. chances of claiming insurance is low
b. i dont seen to need to ride out the high interest rate environment. i can always try to do a cash out should the loan rate drop back again. i am aware that cash out can only be paid by cash and not cpf. i am quite old already. i would be able to draw from my cpf soon.

 

[CrashWire]

1. $400,000 in your CPF OA with a $350,000 mortgage balance at 2.8%.

2. $50,000 in your CPF OA with no mortgage.

Which is better? THAT'S a more interesting question, but the correct answer is "not enough information." Suppose I told you that the owner of this home (and mortgage payer and CPF OA owner) has a terminal illness and the Home Protection Scheme (or other MRTA policy). Now the clearly correct answer is Option 1. That's because the HPS/MRTA will soon pay off the rest of the mortgage when the individual dies. Any/all accelerated repayment will be completely wasted, lost forever, so that'd be a terrible financial decision.

If the owner doesn't have a terminal illness, wouldn't it make sense to pay off the mortgage early then? From what I understand of the HPS policy, the owner may apply to get their premiums repriced if they make early mortgage repayments.

 

[BBCWatcher]

If the owner doesn't have a terminal illness, wouldn't it make sense to pay off the mortgage early then?

Maybe. If for example the 2.8% mortgage rate is a temporary upward blip, no. Also, many people would consider 2.8% to be still cheap money, and they might want to deploy OA dollars to the CPF Investment Scheme. And/or they might be able to transfer them to a family member’s SA or RA where they earn at least 4.0%, and that could be a VERY reasonable bet.

”It depends.”
”More information required.”

I recall having a 2.9% loan (by choice; could’ve paid cash) and NOT paying it off any faster than required. (It was a 60 month loan with a rate lock for the duration.) I took the bet that I should plow those dollars instead into prudent long-term retirement savings. That was the correct decision, and it wasn’t even close. So it’ll also depend on the time horizon since that’ll influence the next best alternative (NBA).

 

[iceblendedchoc]

one more benefit of OA is they will not form part of the alimony your ex-spouse can lay claim on.

 

[sohguanh]

Just found this thread and it is mentioned now with SSB rising rate it is better to plough into SSB then say do a voluntary housing refund to your OA. I understand but just wondering what are the other advantages to do the voluntary housing refund to OA option besides the compounding effect one get to enjoy. Was thinking to get compounding effect we can just take the SSB interest paid and re-apply to another SSB to simulate that isn't it? Assumption is SSB I will get full allotment using those monies.

That is, at current situation I don't find any good advantages to go the voluntary housing refund to OA option. As for topping up SA option sorry no go as max. If there are readers who feel the housing refund to OA option as superior to SSB at this moment willing to hear your opinions.

 

[andyhtc]

Just found this thread and it is mentioned now with SSB rising rate it is better to plough into SSB then say do a voluntary housing refund to your OA. I understand but just wondering what are the other advantages to do the voluntary housing refund to OA option besides the compounding effect one get to enjoy. Was thinking to get compounding effect we can just take the SSB interest paid and re-apply to another SSB to simulate that isn't it? Assumption is SSB I will get full allotment using those monies.

That is, at current situation I don't find any good advantages to go the voluntary housing refund to OA option. As for topping up SA option sorry no go as max. If there are readers who feel the housing refund to OA option as superior to SSB at this moment willing to hear your opinions.

When SSB is between 2.5% to 3%, I still consider it a hassle to reinvest the SSB interest for the compounding effect and the interest rates for each batch will be all over the place.

The CPF dashboard allows me to track my OA at one glance, it is super fast to refund (1 min task using CPF app) and the compounding effect happens by itself.

If the SSB is above 3%, it will be a clearly superior place to place your extra cash. Alternatively, the bank dividends are also looking good with higher interest rates and the potential upswing in share prices.