In my last blog post, I said that I have already added $4,000 to my Medisave account.
This would help generate more interest income to pay for my medical insurance.
A risk-free return of 4% isn’t really bad and gives me peace of mind.
Then, the next thing to ask is what about the rest of the year?
Regular readers will know that I have been making voluntary contributions to my CPF account for many years.
Each year, I will ensure that the annual contribution limit allowed by the CPF is reached.
This was especially when interest rates were very low.
Free of risk and volatility with reasonably attractive interest rates, CPF is a great option to help us build a safety net in our retirement finances.
However, in the past two years, some things have changed.
Bond yields rose, and I wrote in my blog that buying Singapore Savings Bonds may be more attractive than making voluntary CPP contributions for some members.
This was definitely the case for me.
As the MA reaches the maximum, more money from voluntary contributions will flow into the OA which pays 2.5% per annum
The end result is an average annual interest rate of 3.0% for my volunteer contributions.
Therefore, I used the money allocated to my Central Provident Fund to buy Singapore Savings Bonds whenever the latter offered a return higher than 3% per annum on a ten-year average return.
At the end of last year, I made a small voluntary contribution of $8,000 to my CPF account.
Why?
With Singaporean savings bond yields falling below 3% in the 10-year average yield, the Central Provident Fund has become more attractive again.
Today I received a notification from CPF that my account pie chart is ready.
this,
1.2 m53.
Such a mouth.
Therefore, with some help from high-yield treasury bills, the Central Provident Fund’s free access money grew faster.
Naturally, the government did most of the effort to grow my savings fund.
My Central Provident Fund savings could have grown more if I had made a larger and earlier voluntary contribution.
Of course, this would have been ridiculous because I could get higher returns from other bonds with a similar rating.
Why didn’t I use the money in stocks instead if I was attracted to higher returns?
I believe there is a useful allocation to bonds that are free from risk and volatility.
Exchanging CPF savings for shares goes against this belief.
Especially for someone my age, having a risk-free and volatility-free component in my investment portfolio becomes even more important.
If the stock market crashes and we happen to need the money, people will appreciate that point much more.
To be fair, I have a large exposure to stocks and don’t need a bigger exposure.
For people who have much less exposure to stocks and have a lot of money in their CPF accounts, it can be different.
It’s all about sizing the allocation appropriately for our circumstances.
In any case, in 2025, I will likely resume voluntary contributions to my CPF account, and Singapore Savings Bonds will likely continue the recent trend of offering less than 3% in the 10-year average return.
So, the CPF pie will grow much larger as the government and I do some of the heavy lifting.
I’m 53 and will have full access to my CPF savings in two years from now.
3% per annum for two years on AAA-rated Singapore government bonds isn’t bad at all.
If AK can talk to himself, you can too.
Related post:
CPF or SSB?