CPF-OA in T-bill university. DBS FD Promo Code 3.9% p.a.

Long time regular readers of my blog might remember that I like saying the government is working hard to help partially fund our retirement.

If we want the government to work even harder for us, make sure we hit the prevailing Full Retirement Sum (FRS) in the CPF-SA and also the Basic Healthcare Sum (BHS) in the CPF-MA as soon as possible.

The magic of compounding is even more magical given a larger base and longer time for it to work.

The CPF-SA and CPF-MA enjoy a floor rate of 4% per annum which, even in today's environment of higher interest rates, is still very attractive.

The CPF-OA, of course, has a floor rate of "only" 2.5% p.a. which until a few months ago was also very attractive.

Money in the CPF-OA was also working hard but only not as hard as money in the CPF-SA or CPF-MA.

It is like working for a company that has a chain of stores and being sent to a store which is still profitable but has the least amount of business in the chain.

Alamak.

What is AK saying?

Spouting nonsense again.

Dementia.

Cham liao.

Anyway, I applied for the 1 year T-bill with CPF-OA money last week and I have been feeling apprehensive ever since.

AK is mental, I know.

Finally, the auction results are out.

Cut-off yield is 3.87% p.a.

Source: MAS

This is just a bit lower than the 4% p.a. I had assumed in an earlier blog in my calculations. 

It is very slightly lower than 3.9% p.a. which was what I thought would be good enough as that would be pretty close to 4% p.a. which is the floor rate of the CPF-SA and CPF-MA.

For a principal sum of $200K, the difference between 4% p.a. and 3.87% p.a. in terms of interest earned (or not earned) is $260.

What about twice or thrice that amount like I mentioned in my earlier blog on the subject?

The difference would be $520 and $780, respectively.

I think most would agree that it is not a tragedy. 

A cut-off yield of 3.87% p.a. is not bad especially when we are being paid the "coupon" immediately instead of having to wait 12 months for it.

OK, the feeling of apprehension has evaporated.

I can rest easy again.

So, it seems that a vast majority of my CPF-OA money is leaving home for the first time ever.

Like a proud parent sending off his children to a prestigious overseas university, I know my CPF-OA money will return stronger after spending 1 year in T-bill university.

Next up is a 6 months T-bill with its auction on 2nd February and I will be using cash on hand to make the application.

As long as yield hovers at around the current level, I am going to keep buying T-bills. 

Hopefully, I will have the resources to do so every two weeks.

If things don't go awry, I would like to keep doing this until April when money from the first T-bill I bought in October last year returns.

It would just be recycling returning funds from then on.

I am aware that some banks like CIMB offer 4% per annum interest rate on 6 months fixed deposits.

However, I only think of DBS, OCBC and UOB as being somewhat on par with T-bills in terms of being relatively risk free if we should have $75K or more in deposits. 

Unfortunately, our three local lenders are rather parsimonious.

What to do?

Look out for better fixed deposit promotions from our local lenders!

Currently, DBS has a 3.9% p.a. 5 months fixed deposit promotion for a minimum of $20,000 placed.

Promo code: SR5A.

I just placed mine.

Cepat!

Huat ah!

References:
1. $1.1m in CPF savings.
2. Using CPF-OA for T-bills.
Interesting read:
CPF money is not our money?