From OA to SA

[endlssorrow]

I agree but how many here actually brought it during the recession?

It is entirely possible, especially if such shares have been purchased at depressed levels seen in 2008-2009. Many REITs were yielding more than 10% p.a.

SUNTEC REIT, when it was trading at 50c, was giving a 10c dividend. That was a whopping 20% yield for those who dared to buy Suntec REIT then. There were many more such shares.

 

[BBCWatcher]

Why wouldn't transfer from oa to sa? Because it is a one way traffic.

It's a one-way conversion. But "so what"? There are many one-way paths in life. Becoming a parent is one example. Bringing a child into this world is, for all intents and purposes, an irrevocable, one-way decision. As another example, becoming a Singaporean citizen, with the firm requirement to terminate any/all other citizenships that new Singaporean citizen possesses, is a one-way, irrevocable conversion (typically). Many medical procedures are irrevocable, one-way procedures.

The fact OA to SA is a one-way conversion isn't unusual. The question is whether funds should stay in OA earning a lower interest rate. Sometimes that makes sense in particular circumstances, and sometimes not.

 

[BBCWatcher]

I agree but how many here actually brought it during the recession?

Nobody has a perfect (or even mediocre) crystal ball. It's really quite silly to point to some random investment vehicle and look at its price at the bottom. You can always do that. Heck, you can make the same argument about roulette at the casino. If only you bet on Red 5 for the wheel spin at Marina Bay Sands on May 9, 2017, at 8:02 p.m., you would have made a fortune....

The reality is that the vast majority of Singaporeans who participate in the CPF Investment Scheme are not even beating Ordinary Account interest rates, never mind Special Account interest. I do not recommend taking 4+% sure bet money for these purposes (CPFIS). CPFIS options are frankly terrible. They're all high cost, and most are high risk. If you want to invest in shares, funds, REITs, etc., etc., it's really best if you do that completely outside CPF, and then highly preferably in low cost, passively managed (indexed), highly diversified fund(s) with steady dollar cost averaging to buy.

 

[dr3amgawd]

Well you can only show a person the door. Walking through it is entirely up to an individual.

Sent from Xiaomi HM NOTE 1W using GAGT

 

[dr3amgawd]

Nobody has a perfect (or even mediocre) crystal ball. It's really quite silly to point to some random investment vehicle and look at its price at the bottom. You can always do that. Heck, you can make the same argument about roulette at the casino. If only you bet on Red 5 for the wheel spin at Marina Bay Sands on May 9, 2017, at 8:02 p.m., you would have made a fortune....

The reality is that the vast majority of Singaporeans who participate in the CPF Investment Scheme are not even beating Ordinary Account interest rates, never mind Special Account interest. I do not recommend taking 4+% sure bet money for these purposes (CPFIS). CPFIS options are frankly terrible. They're all high cost, and most are high risk. If you want to invest in shares, funds, REITs, etc., etc., it's really best if you do that completely outside CPF, and then highly preferably in low cost, passively managed (indexed), highly diversified fund(s) with steady dollar cost averaging to buy.

Commendable that u are willing to spend time sharing and raising awareness. There's only so much one can do

Sent from Xiaomi HM NOTE 1W using GAGT

 

[henrylbh]

The fact OA to SA is a one-way conversion isn't unusual. The question is whether funds should stay in OA earning a lower interest rate. Sometimes that makes sense in particular circumstances, and sometimes not.

There is no guarantee that SA will be higher in time to come. In 2008 when SMRA rate is floated, the government cautioned CPF members to prepare for SMRA rate adjustment in their financial planning.

Generally, Singaporeans are getting richer and saving more outside CPF year by year and banks will be flushed with S$ money over time. Besides CPF funds are growing by many billions a year and it will not be sustainable or easy for the government to continue giving special rate on funds borrowed from CPF when the government could easily borrow at much lower rates from the market. We may be like Japan suffering from very low interest rate for prolonged period with no sign of interest rate going up.

 

[BBCWatcher]

There is no guarantee that SA will be higher in time to come.

That's technically true, and it's also technically true that OA might not always have a 2.5% interest rate floor. The government could change the law. Practically everything is possible. "So what"?

The reality is that SA earns 1.5 percentage points more than OA, and that reality has been true for many, many years. There is ample rate-based motivation to make this conversion. That part is quite straightforward.

The only material question is how much value, in your personal circumstances, you would get from having particular funds available that can be used in the ways OA can and SA cannot. (I say "particular" because you can convert any amount of your OA funds you wish, subject to the Full Retirement Sum limit on your SA. You might very well decide that you want $2,000 of OA and want to convert the rest, or whatever.)

There is at least one aspect of OA funds that many people view as a negative: the "HDB sweep." OA to SA conversion is an effective way to avoid that sweep.

 

[henrylbh]

That's technically true, and it's also technically true that OA might not always have a 2.5% interest rate floor. The government could change the law. Practically everything is possible. "So what"?

The reality is that SA earns 1.5 percentage points more than OA, and that reality has been true for many, many years. There is ample rate-based motivation to make this conversion. That part is quite straightforward.

It not a matter of so what. I cannot fail to notice this pattern. You gave impression that the differential rate is enticing and will remain and one should go for it with one time tax benefit (while it last or for the time being?).

Also in reality, CPF has gone up as high as 6.5% and down to statutory min of 2.5%, even for SA. I merely highlighting that interest rate cannot be taken for granted when making decision to freeze fund till dawn.

 

[BBCWatcher]

The government could also decide to change the law and reduce OA interest to 2.0% or 1.0% while leaving SA interest the same as today. All rate changes are technically possible.

That's not too interesting. The fact is that, since July 1, 1995, the Special Account interest rate has always been higher than the Ordinary Account interest rate. Previously, the Special Account interest rate has been equal to the Ordinary Account interest rate. NEVER lower, and always substantially higher since mid-1995. Here's the history.

Yes, in principle, the government can do anything it wishes with either or both interest rates. What actually happened, in the real world, is that the government increased SA interest rates above OA rates in mid-1995 and has kept SA interest rates substantially above OA rates ever since.

I really don't know what point you're trying to make. SA interest rates are a lot higher today, and they have been higher for nearly 22 years (as I write this) and never lower. The prospect and probability of enjoying higher interest with an OA to SA conversion going forward is overwhelmingly likely. That extremely high probability is attractive. That's the primary motivation for doing OA to SA conversions. It's a logical, sensible, rational motivation, unquestionably.

 

[endlssorrow]

To transfer cash to SA, is to transfer cash to OA then to SA?

 

[badsector]

To transfer cash to SA, is to transfer cash to OA then to SA?

login ur CPF account.

u can see all the various "Transfers" and "Cash top-up" options

 

[LiteHouse]

Yes, SA at 4% is higher interest than OA, but SA cannot be used to pay for house. And once transferred, cannot be transferred back to OA, until your are 55 (then OA merge with SA = RA). SA cannot be used to buy stock. So if a GFC comes along like that of 2008, where DBS is selling for $6, and you do not have the cash to buy, you cannot use OA to buy, like me.

SA can be used to buy stocks. Check with your broker. Not many people use SA due to 4% risk free.

 

[kehyi4]

SA can be used to buy stocks. Check with your broker. Not many people use SA due to 4% risk free.

Nope. SA cannot be used to buy stocks. Only "professionally managed" products. And only certain, selected ones. For full list see:

CPF FAQ: CPF Investment Schemes

 

[endlssorrow]

login ur CPF account.

u can see all the various "Transfers" and "Cash top-up" options

Ops ok thanks

 

[Earnasyougrow]

I am using my mom RA as my FD account but do yr due dilligence in weighing the risk.

 

[SBC]

If there is no pinch, there will be no kick in SA.

I remember my maiden transfer from OA to SA was made when I was aged 24.
It was $12k. The transfer amount ballooned to $50k when I had to bankrupt OA for HDB loan in 2012.

I have never regretted.

Power of Compounding!!

 

[henrylbh]

I am using my mom RA as my FD account but do yr due dilligence in weighing the risk.

Let me share what I did. I am also using my father's RA. But it goes further than what you could do.

I transfer my OA to his RA. Under the rules he will get immediate payout over 5 years and his RA earns 6% on first 30k, 5% on next 30k and the excess earns 4% compare to 2.5% on the amount sitting in my OA.

His monthly payouts go into a joint account with me. At periodic interval, I will use the money in the joint account to make voluntary contribution to my own CPF accounts. The contribution will go into my OA and SA as there is limit on MA. At this moment his RA is about 100k and his monthly payout is $1,861.

The cycle keeps repeating when my father's RA depletes to a certain level.

In the process, my OA transferred is actually earning 6% on first 30k, 5% on next 30k and the balance at 4%

In making voluntary contribution, part of the OA transferred to my father gets back to my CPF as SA (I can't transferred my OA directly to my SA).

The only risk is when I go before him. Whatever left in his RA and joint account belong to him. But it is meant for him anyway, in case I die. And when he dies after me, his RA will go back to my nominee and the money in the joint account will go to his estate.. But money in joint account is not much because of periodic withdrawals to put into my CPF as voluntary contributions.

Over the years, I have transferred $131k of my OA to his RA excluding 18k cash top-ups many years ago. I can still transfer 100k to his RA to meet ERS of 249k and I am contemplating do so.

 

[Earnasyougrow]

Let me share what I did. I am also using my father's RA. But it goes further than what you could do.

I transfer my OA to his RA. Under the rules he will get immediate payout over 5 years and his RA earns 6% on first 30k, 5% on next 30k and the excess earns 4% compare to 2.5% on the amount sitting in my OA.

His monthly payouts go into a joint account with me. At periodic interval, I will use the money in the joint account to make voluntary contribution to my own CPF accounts. The contribution will go into my OA and SA as there is limit on MA. At this moment his RA is about 100k and his monthly payout is $1,861.

The cycle keeps repeating when my father's RA depletes to a certain level.

In the process, my OA transferred is actually earning 6% on first 30k, 5% on next 30k and the balance at 4%

In making voluntary contribution, part of the OA transferred to my father gets back to my CPF as SA (I can't transferred my OA directly to my SA).

The only risk is when I go before him. Whatever left in his RA and joint account belong to him. But it is meant for him anyway, in case I die. And when he dies after me, his RA will go back to my nominee and the money in the joint account will go to his estate.. But money in joint account is not much because of periodic withdrawals to put into my CPF as voluntary contributions.

Over the years, I have transferred $131k of my OA to his RA excluding 18k cash top-ups many years ago. I can still transfer 100k to his RA to meet ERS of 249k and I am contemplating do so.

Thanks for sharing! Really a good plan for me once I max out my own SA and 60k in my mom RA acct!

 

[highsulphur]

Let me share what I did. I am also using my father's RA. But it goes further than what you could do.

I transfer my OA to his RA. Under the rules he will get immediate payout over 5 years and his RA earns 6% on first 30k, 5% on next 30k and the excess earns 4% compare to 2.5% on the amount sitting in my OA.

His monthly payouts go into a joint account with me. At periodic interval, I will use the money in the joint account to make voluntary contribution to my own CPF accounts. The contribution will go into my OA and SA as there is limit on MA. At this moment his RA is about 100k and his monthly payout is $1,861.

The cycle keeps repeating when my father's RA depletes to a certain level.

In the process, my OA transferred is actually earning 6% on first 30k, 5% on next 30k and the balance at 4%

In making voluntary contribution, part of the OA transferred to my father gets back to my CPF as SA (I can't transferred my OA directly to my SA).

The only risk is when I go before him. Whatever left in his RA and joint account belong to him. But it is meant for him anyway, in case I die. And when he dies after me, his RA will go back to my nominee and the money in the joint account will go to his estate.. But money in joint account is not much because of periodic withdrawals to put into my CPF as voluntary contributions.

Over the years, I have transferred $131k of my OA to his RA excluding 18k cash top-ups many years ago. I can still transfer 100k to his RA to meet ERS of 249k and I am contemplating do so.

you forgot to state the most important disclaimer for you to do this


Your father is not on CPF Life but rather under the old Minimum Sum Scheme

 

[Earnasyougrow]

you forgot to state the most important disclaimer for you to do this


Your father is not on CPF Life but rather under the old Minimum Sum Scheme

What if my mom is under cpf life? I can still defer the payout till 70 years old. Can I still transfer my OA to her RA to earn the 4%?