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Pros And Cons Of Using Cash, CPF, And SRS Funds To Invest

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With interest rates staying high, fixed deposit investments are gaining popularity among investors, who prioritise capital preservation over capital growth. These saving instruments offer a capital guarantee by the issuer and a fixed interest rate, depending on the length of the lock-in period.

Typically, cash funds are the preferred choice of method to invest in fixed deposits, though we can also invest using our supplementary savings (SRS) funds. Moreover, with OCBC and, more recently, Maybank offering CPF fixed deposits, using our CPF Ordinary Account (OA) savings is also now another option.

Given the different ways to invest in fixed deposits, we should understand the pros and cons of each of these methods and how they can fit our investment objectives.

#1 Pro Of Using Cash, CPF OA & SRS Funds: Earn Higher Rate Of Return On Idle Savings  

Instead of leaving our cash or SRS savings idle, which will earn a paltry 0.05% interest per annum (p.a.), we can invest in fixed deposits to earn a higher rate of interest. Other than idle savings, we can also lock up our cash savings that we intend to preserve or use in the future. This allows us to not only earn a higher rate of return on our savings but also be assured that we will not use the amount for other purposes in the interim.

Another option that we can leverage to invest in fixed deposits is our SRS savings. It allows us to get dollar-for-dollar tax relief for up to a yearly contribution limit of $15,300 for Singaporeans and Permanent Residents and $35,700 for foreigners. Similarly, we can invest the SRS funds intended to safeguard against market volatility in fixed deposits, enabling us to accumulate higher tax-free returns.


Lastly, we can also consider investing in the CPF fixed deposits offered by OCBC and Maybank, which are currently higher than the CPF floor rate of 2.5% p.a. For instance, OCBC’s Time Deposit offers an interest rate of 2.7% p.a. when applied at physical bank branches and 3.10% p.a. if applied using the OCBC Digital app. On the other hand, Maybank’s CPF fixed deposit has a promotional interest rate of 2.90% p.a.

This could be a useful option for those of us who want to maximise our CPF OA returns instead of leaving them idle, for example, like waiting for one’s BTO flat. Also, it could be another alternative to investing in T-bills, especially if we want certainty over the interest rate.

Read Also: Banks Are Offering Higher Interest Rates For CPFOA Fixed Deposits, But What’s The Catch?

#2 Con Of Using CPF OA: High Deposit Requirement

One factor to consider when choosing to invest in fixed deposits with a particular bank is the minimum investment amount. The requirement could be in a low range of between $1,000 and $5,000 for SRS and cash funds, while the high range could be between $20,000 and $30,000 for cash funds. Interestingly, Chinese banking firm ICBC Singapore sets one of the lowest fixed deposit requirements of $500 cash deposit if applied via e-banking (online).

However, if we were to invest using our CPF funds, we would need to first set aside $20,000 in our OA savings. Next, we need to factor in the minimum investment amount for the two CPF Time Deposits. For instance, OCBC has a minimum investment amount of $30,000, while Maybank requires a minimum placement of $20,000. Therefore, if we wish to invest in fixed deposits using our CPF OA savings, we need to have a minimum CPF OA balance of between $40,000 and $50,000.

#3 Con Of Using CPF OA: Offers Limited Options For Maturity Period

Typically, when we invest using our cash savings or SRS funds, we can invest in fixed deposits with varying maturity periods ranging from as short as 1 month to as long as 3 years. This gives us the flexibility to choose a suitable investment period that meets our objectives and needs.

However, when we invest in fixed deposits using our CPF OA funds, we are limited to two options. For instance, if we want a short maturity period of less than 1 year, the only option is OCBC’s CPF Time Deposit, which has a maturity period of 6 months. Whereas, if we want to lock in the interest rate for a longer period, we can only do so via Maybank’s CPF Time Deposit, which has an option for only a 12-month maturity period.

This inflexibility when using CPF OA means we may face a higher re-investment risk should we wish to invest in fixed deposits for a longer period. In other words, we would be subjected to changing interest rates more regularly if we continued to invest in fixed deposits using our CPF OA funds.

Read Also: Step By Step Guide To Opening Your Supplementary Retirement Scheme (SRS) Account

#4 Cons Of Using CPF OA & SRS Funds: Additional Investment Charges That Eats Into Returns  

Using cash funds to invest in fixed deposits allows us to reap the maximum profit as there are no additional investment-related charges.

However, if we invest in fixed deposits using SRS or our CPF funds, there is a one-time additional investment charge of $2.50 per transaction and a further $2 every subsequent quarter we hold the fixed deposit investment in our SRS or CPF investment account.

Additionally, we also have to consider the opportunity cost of investing using our CPF funds due to how CPF interest is computed and credited into our accounts. When we withdraw our CPF OA savings for investment, we lose earning interest in our OA savings on the withdrawal month. Furthermore, we will only earn interest the following month after we return our OA savings from the investment account. Therefore, there might be a two-month CPF interest loss on our OA funds.

We have written another article to explain the opportunity cost of investing using CPF funds and why we should consider it when determining our investment returns.

Read Also: 10 Investments You Can Make With Your Supplementary Retirement Scheme (SRS) Account

#5 Cons Of Using CPF OA: May Need To Visit Physical Bank Branch To Invest

As a digital society, we are more likely to access banking services through online services, like applying for investment products, buying stocks, or managing our portfolio. They are not only a convenient way to access these services, but they also make us more efficient.

Similarly, though certain banks offer in-person fixed deposit applications, generally, we can make an online application to invest in fixed deposits using our cash or SRS funds. However, the same cannot be said if we use our CPF funds.

For example, if we wish to invest our CPF funds in Maybank’s CPF fixed deposit, we must take the hassle of going down to any of its physical bank branches. On the other hand, though OCBC’s CPF Time Deposit also allows us to invest in person at a bank branch, it incentivises us with a higher interest rate should we apply via the OCBC Digital app.

Read Also: Step By Step Guide To Buying T-Bills Online Using Your CPF OA Savings

Understanding Our Investment Objectives Helps To Determine The Suitable Option To Invest In Fixed Deposits

Fixed deposit investments can be utilised to protect our savings from market volatility or simply to earn a higher rate of return on our idle savings. Other than the interest rates, which differ depending on which method we choose to invest in, we should also consider the minimum investment amount and the maturity period that suits our investment objectives before deciding on the method to invest in.

While the high interest rate environment presents an arbitrage opportunity to earn more than the CPF floor rate, we should also factor in additional investment charges that may eat into our returns.

Otherwise, we could consider using our cash or SRS funds to invest in fixed deposits if we want to earn the highest possible interest return with a flexible maturity period.

Factors Using Cash To Invest In Fixed Deposit Using CPF OA To Invest In Fixed Deposit Using SRS To Invest In Fixed Deposit
Interest Rates Offers the highest interest rates of above 3% p.a. Offers a higher than CPF floor interest rate of between 2.7% and 3.1% p.a. Offers the highest interest rates of above 3% p.a.
Minimum Deposit Requirement As low as between $1,000 and $5,000 $20,000 – Maybank CPF Time Deposit
$30,000 – OCBC CPF Time Deposit
As low as between $1,000 and $5,000
Maturity Period Offers a varying mix of maturity periods from 1 month to 3 years 6 months – OCBC CPF Time Deposit
12 months – Maybank CPF Time Deposit
Offers a varying mix of maturity periods from 1 month to 3 years
Additional Investment Charges Nil CPF investment charges of $2.50 for each deposit transaction and $2 quarterly service fee SRS investment charges of $2.50 for each deposit transaction and $2 quarterly service fee
Online application or physical application Generally, both in person application and online applications are available OCBC CPF Time Deposit offers in person and online application while Maybank CPF Time Deposit is only available with in person application Generally, both in person application and online applications are available

 Read Also: Beginners’ Guide To Fixed Deposits In Singapore

 

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