Saturday 3 December 2022

The Magic Rate to use your CPF OA for Singapore T bills even if the Rates are Falling

As many people will know, T bills interest is falling due to its attractive returns and its bidding mechanism. People will say that below 4% is not good, but in fact it is still good. As long as T bills offer 3.45% and above, it is better than CPF OA rates.

Therefore, Singaporeans should put the maximum sum of their CPF OA avalaible into T bills because of its higher interest than OA and are backed by the same entity - the Singapore Government (CPF OA is only 2.5%). Readers may point out that the first 20k of CPF OA earns 3.5% but this point is moot because the first 20k of your CPF OA cannot be used for T bills (so this point is covered). 

Cut Off Point of T bills being Attractive

The magic number is 3.45%. This is because of the mechanism where CPF does not give you interest for the month you withdraw the amount for T bill application and the month which it is deposited. Hence, I have assumed the worst case scenario where you dont earn interest for a total of 8 months. 

In short, T bills which yields 3.45% or more is more attractive than CPF OA.

Therefore for those who are putting in under the competitive allocation for T bills, 3.45% is the lowest number you should key in; any lower, CPF OA is slightly ahead. However, the good thing is that if the cut off rate for T bills is higher, you enjoy the higher interest as well. So there is nothing to lose!

As a reminder, the current tranche of T bills is open for application. To make your CPF retirement work for you, remember to bid as much T bills as possible; for those who are bidding under the competitive allotment, the magic number is 3.45%. For those bidding under the non competitive allotment, put as much of your CPF OA as possible.

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