You might be curious if there is any way to maximise the current high interest rates using your CPF money. After all, 2.5 per cent and 4 per cent per annum for your CPF Ordinary Account (OA) and Special Account (SA) respectively were much more attractive back when bank interest rates were low. Now, with fixed deposits from private financial institutions offering rates of up to 4.2 per cent per annum to even savings accounts offering up to 7.8 per cent per annum interest rates, the returns that CPF gives you are starting to look a little lacklustre.

Not to worry — there are ways that you can take advantage of the current market conditions and invest your CPF in the new year. The CPF Investment Scheme, originally implemented in 1986, allows you to invest your CPF into the open market.

In this guide, we will give you a run-down on the investment products you can invest in using your CPF funds and what you will need to consider before getting started.

Eligibility criteria

There are a few requirements you have to meet before you are able to invest your CPF. Namely:

• You have to be at least 18 years old
• You are not an undischarged bankrupt
• You have at least $20,000 in your CPF OA account and/or at least $40,000 in your CPF SA
• You have completed the CPFIS self-awareness questionnaire (SAQ)

Restrictions

There are a couple of restrictions when it comes to investing your CPF.

Firstly, if you choose to invest using your Ordinary Account (OA), you can only do so after setting aside a minimum of $20,000. Similarly, if you choose to invest with your Special Account (SA), you would have to set aside $40,000.

Additionally, there is a stocks and gold cap when investing with your OA. You are only able to invest up to 35 per cent of your investable savings in stocks and up to 10 per cent in gold. Your investable savings is the sum of your OA balance and the amount of CPF you have withdrawn for investment and education purposes. There are currently no stock and gold limits for investing using your SA.

While you are able to invest using both your OA and your SA, in this article, we will focus on how to invest using your CPF OA. A major pro to investing your CPF is that you can grow your retirement nest egg quicker. However, on the flip side, as with any investment, there will be risk involved. You do not want to be in a situation where your investment returns are less than the guaranteed CPF returns.

As such, it is much easier for your investments to beat the OA’s 2.5per cent interest rate, making it a comparatively “safer” option. There is also a slightly larger selection of investment products available when investing with your OA as compared to your SA, as a few higher risk investments are excluded from the list of products you are able to invest your SA in.

Investment products

Unit Trusts (UTs)

A Unit Trust pools together many a large group of investors’ money and invests it in a portfolio of assets, including stocks, bonds, property and more according to the objective and approach of the fund. The fund is typically managed by a fund manager. There are currently about 100 Unit Trusts available that you can choose from.

Unit trusts are a good option if you do not want a hands-on approach to managing your investments as a fund manager will be managing the portfolio for you. They tend to be more actively managed than an investment product like ETFs.

Insurance-wrapped investment products.

You can also purchase insurance-wrapped investment products. These include Investment-linked Insurance Products (ILPs), Annuities and Endowment policies.

Similar to Unit Trusts, Investment-linked Insurance Products (ILPs) are funds that invest in a group of assets. ILPs also give you an element of life insurance on top of exposure to these funds. There are currently 110 funds available for you to invest in through ILPs.

Annuities are also an insurance product where your money is invested on your behalf. You will receive payouts from the insurance company at predefined time intervals at either a fixed or variable interest rate, depending on the type of annuity you choose to purchase.

Endowment policies, on the other hand, are a type of insurance product where you will receive a lump-sum payment upon maturity or death. You are able to choose the duration of the endowment policy.

These insurance products are all provided by reputable insurers in Singapore, such as:

• 1. AIA Singapore Private Limited (AIA)
• 2. Singapore Life Ltd. (SINGLIFE)
• 3. AXA Insurance Pte Ltd (AXA LIFE)
• 4. Great Eastern Life Assurance Co Ltd (GE LIFE)
• 5. HSBC Insurance (Singapore) Pte Ltd (HSBC INS)
• 6. Income Insurance Limited (NTUC)
• 7. Manulife (Singapore) Pte Ltd (MANULIFE)
• 8. Prudential Assurance Co Singapore Pte Ltd (PRU ASSURE)
• 9. Tokio Marine Life Insurance Singapore Ltd (TMLS)

Singapore Government Bonds (SGBs) and Treasury Bills (T-bills)

Both SGBs and T-bills are Singapore government investment products that provide an interest payment every six months until the SGB or T-bill matures. You will then receive your principal amount back.

These types of investment products have been gaining popularity as of late due to the rising benchmark interest rates. They are also deemed as relatively safe investments as they are fully backed by MAS.

Exchange Traded Funds (ETFs)

There are currently only six ETFs that you can invest in using our CPF OA. You are not able to invest in any of these ETFs using your CPF SA.

• 1. These ETFs include:
• 2. ABF Singapore Bond Index Fund
• 3. Nikko AM SGD Investment Grade Corporate Bond ETF
• 4. Nikko AM Singapore STI ETF
• 5. NikkoAM-StraitsTrading Asia ex Japan REIT ETF
• 6. SPDR Gold Shares *
• 7. SPDR Straits Times Index ETF

* The SPDR Gold Shares ETF is subject to the 10 per cent gold limit.

The ETFs have 0per cent sales charge and an expense ratio ranging from 0.24 per cent to 0.60 per cent.

ALSO READ: CPF Investment Scheme (CPFIS): Should you invest your CPF money?

Fixed Deposits (FDs)

Fixed deposits are probably the most straightforward way to maximise your CPF returns. Fixed deposits offer a guaranteed rate of return. With the rising interest rates, many banks are now offering interest rates in the 3 per cent per annum range on their fixed deposits, well above the 2.5 per cent interest rate given by the CPF OA. Do note that only fixed deposits offered by the three local banks — DBS, OCBC and UOB — can be purchased with your CPF OA money.

Despite 2.5 per cent being the commonly remembered magic number when it comes to OA interest rate, it is important to consider that we currently earn a bonus interest of 1per cent on the first $60,000 of our OA. This makes the total interest earned on that first $60,000 3.5 per cent per annum.

It would not be wise to invest your CPF money into the OCBC 12-month fixed deposit at 3.4 per cent if you have less than $60,000 in your OA. Hence, fixed deposits are only really a worthwhile investment at current interest rates if you have a large amount of money in excess that you are looking to invest.

Stocks, property funds and corporate bonds

You are only able to invest in stocks, property funds and corporate bonds using your OA (and not your SA), and there is a stock limit of 35per cent of your investable savings on the three investment products combined. This is because these assets are considered to be riskier in nature. There is an extensive but predetermined list of stocks you can invest in under the CPFIS, which you can view on the SGX website.

You will need to use one of the follow nine approved brokers to make any purchases:

• 1. CIMB Securities
• 2. DBS Vickers
• 3. iFast Financial
• 4. KGI Securities
• 5. Lim & Tan Securities
• 6. Maybank Kim Eng Securities
• 7. OCBC Securities
• 8. Phillip Securities
• 9. UOB Kay Hian

Gold products

You are also able to invest in gold products only using your OA, and can only invest 10per cent of your investable savings. This includes the aforementioned SPDR Gold Shares ETF. Other gold products that you can invest in include gold certificates, gold savings accounts, physical gold.

How to set up an account to invest under the CPF investment scheme

Before you can start investing your CPF, you first have to complete the CPFIS Self-Awareness Questionnaire (SAQ). The Self-Awareness Questionnaire will help determine your level of financial knowledge to see if the CPFIS is appropriate for you.

After which, if you would like to invest your CPF OA money, you will need to open a CPFIS-OA account with one of the three local banks (DBS, OCBC or UOB). Currently, only UOB offers gold investment products. You can only maintain one CPFIS-OA account at a time so ensure that you plan ahead if you want to purchase gold products.

You will have to physically go down to a branch to open a CPFIS-OA account.

Documents required:

• NRIC
• Copy of CPF statement to verify CPF account number
• Copy of your SAQ status

Once you have opened your CPFIS-OA account, you may directly approach product providers to purchase your desired investment products. All sales and transactions will be executed and kept track of by the bank on your behalf.

If you want to invest your CPF SA, you do not have to open any special account. You can directly approach product providers to purchase your desired investment products. You will need to provide the same three documents to the product provider for verification purposes and the CPF board will execute your purchase of investment products on your behalf.

This article was first published in ValueChampion.