Singapore CPF ETF Guide: Investing Your CPF Savings

CPF Investing Basics

The Central Provident Fund (CPF) is Singapore's mandatory savings scheme, with contributions split across the Ordinary Account (OA), Special Account (SA), and MediSave Account (MA). The OA currently earns a guaranteed 2.5% interest, while the SA earns 4%. Through the CPF Investment Scheme (CPFIS), you can invest a portion of your OA and SA funds in approved instruments including certain ETFs.

The key question is whether the potential returns from ETF investing can consistently beat the guaranteed CPF interest rates. For the SA at 4%, this is a high bar that most conservative strategies struggle to beat after accounting for fees and risk. For the OA at 2.5%, a diversified stock ETF portfolio has historically delivered significantly higher returns over long periods.

CPFIS investing is not for everyone. If you are uncomfortable with market volatility or have a short time horizon, the guaranteed CPF rates provide a solid, risk-free return that beats most savings accounts worldwide.

CPFIS-Eligible ETFs

Not all ETFs are eligible for CPFIS investment. The CPF Board maintains a list of approved investments. For ETF investors, the key eligible funds include the STI ETF (tracking the Straits Times Index), the ABF Singapore Bond Index Fund, and certain Nikko AM and Lion Global ETFs.

The most popular CPFIS ETF choices are the SPDR STI ETF and the Nikko AM STI ETF, both of which track Singapore's benchmark Straits Times Index. These provide exposure to Singapore's 30 largest listed companies, including banks like DBS, OCBC, and UOB.

Should You Invest Your CPF OA?

The decision to invest CPF OA funds depends on your investment horizon and risk tolerance. Historically, the Singapore stock market has delivered returns above 2.5% over long periods, but with significant volatility. If you have 20 or more years before you need the funds, investing in the STI ETF has historically been rewarding.

However, CPF OA funds also serve as a source for housing payments. If you plan to use OA funds for a property purchase within the next few years, keeping them in the guaranteed 2.5% is safer. Only invest OA funds that you do not plan to use for housing.

• Only invest CPF funds you will not need for housing or immediate use
• The OA rate of 2.5% is the benchmark your investments must beat
• The SA rate of 4% is very difficult to beat consistently; consider keeping SA funds in cash
• Use CPFIS for long-term investing (10+ years) only
• Dollar-cost average into STI ETF monthly to reduce timing risk

OA vs SA: Where to Focus

The SA's 4% guaranteed return is exceptional by global standards. Very few investments can reliably beat 4% with low risk. For most Singapore investors, leaving SA funds untouched and earning the guaranteed 4% is the optimal strategy. Focus CPFIS investing on OA funds where the 2.5% bar is lower.

If you max out your SA through voluntary contributions or OA-to-SA transfers, the compounding at 4% is powerful. By retirement age, a well-funded SA can provide substantial retirement income without any investment risk. This guaranteed compounding should not be underestimated.

Investing Beyond CPF with Cash

For Singaporeans with investable cash beyond CPF, the Supplementary Retirement Scheme (SRS) and regular brokerage accounts provide additional tax-advantaged and taxable investing options. Singapore does not tax capital gains, making it an exceptionally favorable environment for ETF investing.

Through a regular brokerage account, you can access global ETFs beyond the limited CPFIS list. Irish-domiciled UCITS ETFs like IWDA (iShares Core MSCI World) or CSPX (iShares Core S&P 500) are popular choices for Singaporean investors seeking global diversification at low cost.

Your Action Plan

First, evaluate whether CPFIS investing is appropriate given your time horizon and housing plans. If you have OA funds you will not need for 10 or more years, consider investing in the STI ETF through CPFIS. Leave SA funds in the guaranteed 4% rate.

For additional investing beyond CPF, open a brokerage account with a low-cost broker like Interactive Brokers and invest in global ETFs. Singapore's zero capital gains tax makes it one of the best countries in the world for long-term ETF investing. Take full advantage of this by investing consistently in a diversified, low-cost portfolio.