No, this post is not about me. In case you did not know, I have hardly any disposable OA funds to deploy.
Instead, this is me strategizing for my in-laws, who have been procrastinating with regards to deploying their sizeable OA balance into T-bills or SGS bonds. A couple of months ago, they made a trip to UOB (their CPF agent banks), took back a form, and then that was it. They missed the auction date for that round of T-bill and there was no action since.
As they said, you can lead the horse to water but you can’t make him drink. But maybe this time round, I would need to scoop the water up to the mouth.
Attractive SGS 2 Year Bond
6-month T-bills are pretty common. There are two issues a month. For 1-Year T-bills, they are less common since there will only be 4 issues in a year. The next 1-Year T-bill is sometime in April.
As for 2-year SGS bonds, they are even rarer with only 2 issues in a year.
And yes, there is one upcoming that will be available for auction on 24 Feb. This is one issue I will definitely highlight to my in-laws.
6-month T-bills can be tedious since over a 2 year period, you will have to rollover at least 3 times. Assuming interest rates remain high and T-bills continue to be superior to the CPF OA rate of 2.5%.
At the same time, I do not believe interest will stay high for longer than 2 years. I am sure those with huge bank mortgages would hope I am right. Therefore, now might be a good time to lock in good rates.
For a $200k sum, if the 2-Year SGS bond yields 3.5%, the incremental value should be close to $4,000 over two years. Probably worth the effort to queue once or twice at the UOB bank to make it happen.
Could Procrastination Pay Off For My In-Laws?
Interest for T-bills should be waning. I think those who are in the loop would have deployed half or even all of their disposable CPF OA funds over the past three or four months. And those T-bills will not mature until at least a few months later. So yes, less competition.
At the same time, OCBC has recently launched an 8-month Fixed Deposit Promotion at 3.88% and applicable for CPF funds.
So with this as a backstop, hopefully nobody will place very low competitive bids (like 3%) for this upcoming 2-year SGS bond.
So hopefully, my in-laws will be able to get their full allocation at a good rate.
Some Basic Heuristics For Competitive Bidding
I am 99% confident that rates will not be below 3.2% since the latest 10 year bond closed at 3.17%. So if that satisfies you, you could go on ahead and place a non-competitive bid.
But with the OCBC 8-month 3.88% Fixed Deposit, I feel there is little downside to placing a competitive bid. If you don’t get allocated, there is always the option of going to OCBC or wait for the 1 year T-bill in April.
Therefore, for this 2-year T-bill, the threshold should be a minimum of 3.4%. That is likely to be a conservative bid. 3.6% could be another option while if one is feeling aggressive, 3.8%. I really doubt we will see >4% but if it happens, I am sure my in-laws will not be complaining.
Conclusion
Of course, my in-laws could always invest their OA funds in the local stock market, especially now that we are in a bear market. Certain REITs do appear appealing but they are rather risk-averse and they are also past 60.
Even for younger folks, I believe CPF funds should act as the bond component of one’s portfolio and be the social safety net. No need to take great risks with it. If you are not a good investor, 3.5-4% is a decent return. If you are a great investor, your cash investments should suffice, isn’t it?
So if you have significant disposable CPF OA funds that you are not looking to use for the next 2 years, I do hope this post has been useful to you. And please do not lowball us during this late Feb auction!
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Hi HWW
Just wondering if it is better for your in-laws to top-up the Retirement Account as the interest is 6%?
thanks
Cheers
DE
Hi Doreen,
Why would the interest be 6%? Anyway, they have already met their FRS so I doubt they can top up.
For those with RA (post-55), you can top-up RA to the prevailing ERS ( which is higher than FRS) and ERS is raised every year. They also earn an extra interest of 2% on the first $30,000 of RA and 1% on the next $30,000 of combined CPF balances (capped at $20,000 for OA) in this order: RA, including any CPF LIFE premium balance, OA, with a cap of $20,000, SA, MA.