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As T-bill interest rates rise, more are investing their CPF savings in them. Should you do the same?

More than 3,000 applications – amounting to S$450 million – were made by CPF members to invest their Ordinary Account savings in the three T-bill auctions last month.

SINGAPORE: Rising yields on Singapore’s Treasury bills (T-bills) have attracted the attention of retail investors, with more making the move to invest with their Central Provident Fund (CPF) savings.

More than 3,000 successful applications – amounting to S$450 million – were made to invest CPF Ordinary Account savings in the three T-bill auctions last month, said the Monetary Authority of Singapore (MAS) and the CPF Board.

In comparison, there was only one such application in January, when T-bill interest rates were below 1 per cent.

“The increase in T-bill applications made through the CPF Investment Scheme (CPFIS), and more generally the increased retail participation in T-bills, is likely due to the higher interest rates which have risen alongside global interest rates throughout 2022,” MAS and CPF Board said in a joint reply to queries from CNA.

T-bills are short-term debt securities issued and backed by the Singapore Government, with maturities of one year or less. In October, there were two auctions for T-bills with a six-month tenor and one for a one-year maturity.

Yields on T-bills have been on the rise, mirroring the increase in other government securities such as the Singapore Savings Bonds, as global central banks go on a rate-hike race to curb inflation.

The latest auction for the six-month T-bill reported a cut-off yield of 4.19 per cent per annum, the highest since 1988.

This means that the returns for T-bills have not just surpassed the interest rate of 2.5 per cent offered for CPF Ordinary Account funds, but also the higher interest rate of 4 per cent for Special, MediSave and Retirement Accounts.

T-bills: Why are yields up and will it keep rising?

At 4.19 per cent, the cut-off yield on the six-month T-bill auctioned on Oct 27 marks a 42 basis points jump from the 3.77 per cent reported for the issuance in early October, and up from 0.55 per cent at the start of the year.

Yields on T-bills and other fixed-income instruments have been hugely influenced by the tightening of monetary policy by global central banks. In particular, the US Federal Reserve which delivered another steep 75-basis-point interest rate hike on Nov 2 - its sixth increase this year to tame inflation.

Central banks raise interest rates in an attempt to reduce the amount of money circulating in the financial system, thus aiming to bring inflation down, said OCBC Bank’s head of wealth advisory Aaron Chwee.

But as interest rates go up, investors demand a higher yield for investing in bonds.

“This is why bond yields have risen, especially for highly rated government bonds such as US Treasury bonds and Singapore government bills and bonds,” he added, noting that the yields on T-bills may rise further if inflation remains persistent.

Echoing that, Mr Victor Wong, director of wealth management at Financial Alliance, said Singapore’s short-term interest rates generally track the direction of the short-term rates in the United States.

Noting that the futures market is expecting the US Fed Fund rate to peak at 5 per cent by the first quarter of 2023, he said he “will not be surprised” if the yields on T-bills rise to “hit close to 5 per cent” by then.


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Those interested in investing their CPF Ordinary Account savings in T-bills need to have a CPF investment account with one of the three local banks – DBS, OCBC and UOB.

Applications have to be submitted in person at a bank branch, unlike investments by cash or through the Supplementary Retirement Scheme which can be done online.

UOB said it has seen a surge in interest in T-bills, with its branches receiving about 1,000 enquiries and applications a day for the recent auctions.

T-bill subscription amounts in the third quarter were eight times higher than the previous quarter, it added.

With enquiries for its fixed deposit promotions also on the rise, customer traffic at its branches has increased in recent months, UOB said. To cope, it is hiring temporary staff, as well as bringing back retired employees under its gig employment programme.

Likewise at OCBC, T-bill applications at its branches rose more than three times in October from the previous month and eight times compared to the number of applications between January and August.

The average investment amount was S$120,000, OCBC said. 

MAS and CPF Board said they are working with local banks to enable online applications for T-bills using CPF funds. The current paper-based application process is not a requirement imposed by either authority, they said.

"Rather, it reflects the low demand for T-bills through CPFIS in the past,” they said.

“Recognising the higher participation by CPF members in T-bills in recent months, CPF Board has been encouraging the local banks to offer online applications using CPF funds.”

However, allowing online applications will require changes to existing systems and these take time to be implemented across the banks, they added.

DBS said it has also seen an increase in the number of T-bill investment applications, with common questions around the features of T-bills and application-related matters such as how to fill in certain fields in the form.

“With this in mind, the application process can certainly be enhanced further to offer greater convenience, such as allowing for online applications,” its spokesperson said.


While the need to visit a bank makes it less convenient, financial experts say it may be worthwhile with yields on T-bills surpassing the base interest rate of 2.5 per cent that the CPF Ordinary Account offers.

“I think that it is a good idea to consider putting one’s CPF Ordinary Account funds into T-Bills given that the rates are now higher,” said Providend’s senior client adviser Tan Chin Yu.

As they are backed by the Singapore Government, T-bills can be considered a safe investment option, he added.

That said, there are other factors to be considered before investors make the move.

Like all investments, the key is to understand one’s time horizon or how many years before one needs the funds for other purposes. Also consider the investment's liquidity, meaning how fast the invested capital can be accessed if needed.

“While T-bills are short-duration instruments, investors should still expect to not touch the monies within the next six to 12 months,” said Mr Tan.

“If they require the funds in the short term – either to buy a property or to withdraw for those above 55 years old – then it is better to maintain the funds in their CPF Ordinary Accounts, instead of investing.”

This is because while T-bills are tradable debt securities and there are no penalties for liquidating before maturity, there is still an interest rate risk.

In general, bond prices and interest rates move in opposite directions so if interest rates rise, bond prices will fall and vice versa. This means that in an environment of rising interest rates, investors may not be able to get back the full amount they invested if they sell their T-bills before maturity.

Apart from market risk, liquidity could also be an issue if there are few interested buyers, experts said.

Another consideration is the extra interest offered to CPF members until the end of the year, as part of the Government’s efforts to enhance the retirement savings of Singaporeans.

Those below 55 years old can earn an extra 1 per cent on the first S$60,000 of their combined balances, with a cap of S$20,000 for Ordinary Account funds.

For those aged above 55, an extra 2 per cent interest will be paid on the first S$30,000 of their combined balances, with Ordinary Account funds capped at S$20,000.

Investors should make sure they have these minimum balances in their CPF accounts before investing, said Mr Victor Wong, director of wealth management at Financial Alliance.

There are also opportunity costs that come with the investing of CPF Ordinary Account funds, such as losing out on the CPF interest earned.

In the case of investing in a six-month T-bill, one could lose more than six months of CPF interest on the invested funds because no interest would be earned in the months where there are withdrawals or contributions, Mr Wong said.

Take for example the T-bill auction in end-October, an investor would have had to submit a bid before the auction date on Oct 27. The T-bill was issued on Nov 1 and will mature on May 2, 2023 – a total of 8 months from application to maturity.

There are also fees to be paid.

Agent banks charge a one-time fee of S$2.50 for each transaction, as well as a quarterly S$2 service fee per counter. This means that a T-bill investment using one’s CPF Ordinary Account will incur total fees of S$6.50, inclusive of Goods and Services Tax.

Using the same October T-bill as an example, an investor who put in S$10,000 will earn a return of S$208.90 based on the cut-off yield of 4.19 per cent. On the other hand, the same investor is forgoing about S$166.67 in interest if the funds were left in the CPF Ordinary Account.

“Add in the transaction fee of S$6.50, the excess interest earned is S$35.73 for every S$10,000,” said Mr Wong.

“Hence, you must also (decide) whether this extra S$35.73 per S$10,000 is worth your time (going to a bank) to apply in person. Of course, the extra interest earned will get higher if the yield on T-bills continues to climb,” he added.

Mr Aaron Chwee, head of wealth advisory at OCBC Bank, flagged the possibility of over-subscription in the upcoming T-bill auctions, given how the higher yields are likely to attract more investors.

“Investors should be prepared for such disappointments,” he said.

Source: CNA/sk(cy)


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