Bond not guaranteed unlike Cpf which is almost risk free.
Well, it depends on the bond. There are some AAA-rated bonds, including Singapore's own Singapore Government Securities (SGS) and their Savings Bond counterparts. They just don't yield anywhere near 4%, they don't have the tax advantages, and they're not inflation-adjusted (or only weakly inflation-adjusted). But yes, they're somewhat closer to an on-demand cash account.
As another example, the United States Treasury offers 30 year "I-Bonds." Like CPF you need "status" to buy them (nationality or permanent residence) -- or at least I think you do -- and like CPF there's an annual limit. Like CPF their yield is inflation-adjusted and subject to a minimum yield (0% in the case of I Bonds). Unlike CPF you can cash out at any time (albeit you lose up to 6 months of interest if you do that before 5 years), the yield is low, and the tax advantages are much weaker. If you buy an I Bond today, as I write this, the current nominal yield is 0.26%. That I Bond will pay interest for up to 30 years, and the interest will be readjusted every 6 months for U.S. domestic inflation. The nominal yield will be calculated/recalculated at 0.1% above inflation.(*) U.S. income tax on the interest is deferred until maturity or cash out, whichever comes first. For most people the income tax means the I Bond won't
quite keep up with inflation. That is, in real terms, most people have to pay the U.S. Treasury to hold their U.S. dollar cash. (Unless you can avoid the income tax, which you can if you are moderate income and spend the proceeds on a qualified educational expense, or if you are low income.) Not a great deal! But the I Bond is actually one of the better deals among highly credit worthy government bonds. Fitch rates the U.S. Treasury as AAA, and S&P and Moodys are at AA+ and Aaa respectively. The United States government is a sovereign that can print its own fiat currency (the world's most prominent reserve currency), and it has the biggest army by far. Short of a global catastrophe (when you'll have bigger things to worry about) those bonds are going to be repaid. But look how low that real yield is (0.1%, pre-tax) compared to CPF!
OK, granted, depending on what currency(ies) you need an I Bond might be somewhat more attractive or not. But this just gives you an idea of how low yielding high quality sovereign bonds are right now. Japanese, German, Swiss, U.K., etc. -- they're all extremely low yielding. CPF isn't, and that's unique.
(*) Several years ago the U.S. Treasury issued I Bonds that have nominal yields equal to the inflation rate plus 3% or more. Those lucky individuals holding those particular tranches have some
very nice bonds in their portfolio. The
best tranche of all time was issued in mid-2000: U.S. Consumer Price Index inflation plus 3.6%. Wow, are those nice bonds -- and they'll keep accruing interest for another 14 years or so. (They're nominally yielding about 3.8% during the current 6 month period, as I write this. Pre-tax, tax deferred. That yield is more CPF-like but still not quite CPF -- and that's the best I Bond of all time, if you bought it 16 years ago.) I Bonds cannot be traded on the secondary market, so the smart move is to keep holding those "three percenters" to maturity. (And the "two percenters" as well, and probably also the "one percenters.")
Sometimes you can do pretty well with I Bonds when the inflation rate is volatile, even when it is generally low (as in recent years). Since the inflation recalculation is trailing (as it has to be), there are a few occasions when the inflation rate spikes up -- maybe oil and vegetables have a "bad" month or two, or whatever -- and then there's a buying opportunity, to buy and hold an I Bond for only one year. Occasionally the inflation spike happens and you can beat one year U.S. fixed deposit (called CD) bank rates. You lose 6 months of interest by cashing out so early, so you only collect 6 months of interest. But the 6 months interest you collect is based on the inflation spike, when it happens, and that might work well.
