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SSB, T-bill, CPF & UOB ONE. Use them. My plan.

Sunday, February 12, 2023

A few months ago, I said that it made more sense for me not to do voluntary contributions to my CPF account and to buy Singapore Savings Bonds (SSBs) instead. 

That was when Singapore Savings Bonds were offering 10 year average yields of more than 3% p.a. and it happened for 3 months in a row in 4Q 2022.

Money meant for voluntary contribution to my CPF account in January 2023 were all very nicely deployed into SSBs without any leftovers.

This year so far, SSBs have been offering lower than 3% p.a. in 10 year average yields which is less attractive than the what my CPF account offers.

Of course, what the CPF offers each of us is different based on our age group and how much we have in the Medisave Account. 

The percentage allocation to the Ordinary Account, Special Account and Medisave Account would be different from person to person and could result in a different average interest rate for each of us.

Anyway, before I veer farther off track, if the SSBs continue to offer a lower than 3% p.a. in 10 years average yield for the rest of the year, I am not worried as I would resume voluntary contribution to my CPF account then.

I could do this in the month of December instead of waiting till the new year which was what I had to do in years past.

This is because I have yet to do any voluntary contributions this year, of course.

So, one month in advance for a one month extra interest income.

For now, I will wait and see what the SSBs will offer in the months ahead all the way till December.

After all, the Fed is not done raising interest rate yet with probably a couple more hikes incoming.  

I know many are saying that inflation has been tamed but if inflation in the USA remains elevated, there could be more than just a couple of 0.25% hikes left to go. 

In such a case, we could see yields going higher especially if the US dollar strengthens against the S$.

In case you are wondering why the strength of the S$ is a relevant consideration, it is quite simple. 

A stronger S$ means our country would not have to offer higher yields to compensate bond holders because the S$ is more valuable and bond holders would gain from the exchange rate.

I am veering off track again.

Anyway, what is the plan or, more accurately, my plan?

1. Set aside $42K from my passive income generated this year for voluntary contribution to CPF in 2024.

Money meant for voluntary contributions can be deployed in December 2023 while money for top up to the Medisave Account will be deployed in January 2024.

2. Wait and see if SSBs offer more than 3% p.a. in 10 year average yield in the coming months.

If they do, deploy funds meant for the CPF in 2024 into SSBs instead.

If they don't, use the funds to get 6 months T-bills as long as the yield curve remains inverted which means the front end of the curve remains more rewarding.

Total amount to be deployed this way is $38,000.

3. The strategy of using 6 months T-bills can only extend till June or July 2023 because I will need the funds to be ready for voluntary contribution to my CPF account in December 2023 or January 2024.

If SSBs continue to offer lower than 3% p.a. in 10 year average yield from August to December or the last 5 months of the year, any money meant for CPF voluntary contribution coming in after July 2023 will have to sit in my UOB One Account.

I do not enjoy the highest tier interest rate offered by UOB One Account as I do not have any earned income to credit. 

However, it still offers a relatively attractive interest rate at least for money which cannot be locked up for a few months.

All I have to do is to spend $500 on the UOB One Card and have 3 monthly GIRO transactions.

I meet these conditions every month, anyway.

If you are new to eavesdropping on AK, I do have a significant exposure to equities while the CPF, SSBs and T-bills together form the fixed income component in my portfolio.

Banks and REITs dividend machines? T-bills, SSBs and CPF?

I am mental and this blog is really more for myself as I don't want these thoughts to keep circulating in my mind.

You have been warned.

I use my blog as a "Pensieve."

What is a "Pensieve?"

You didn't watch the Harry Potter movies?

"The Pensieve was a magical device used to review memories." 

My mind feels lighter now.


Siew Mun said...

I reckon March SSB will be above 3% looking since the daily 10Y SGS is creep up to above 3% from 1 Feb onwards

AK71 said...

Hi Siew Mun,

If that happens, the timing would be perfect as I would be receiving some dividends in March. :)

Would be able to deploy at least $10K into SSB then, I estimate.

Maybe, a bit more.

Thanks for sharing your observation. :D

C said...

Dear AK, I am thinking of using my CPF OA money to apply for 1-year T-Bills on a competitive bid basis. But how do I decide at what yield to bid for to ensure higher chance of getting allocated? Thank you:)

AK71 said...

Hi C,

Thanks to OCBC offering FD for CPF-OA money, we know how much to bid in T-bill auctions. ;)

In my case, when I used my CPF-OA money in January, I placed a bid higher than 3.4% p.a. because that was how much OCBC offered for FDs using CPF-OA money then.

Using CPF-OA for T-bills in January.

Now, if I remember correctly, OCBC is offering 3.88% p.a. for FDs using CPF-OA money.

So, I should place a bid higher than 3.88% p.a. if I were to go the competitive route for T-bill auctions. :D

CPF-OA in T-bill university.

C said...

Higher than 3.88% but lower than 3.95% ? Since the cost of NOT getting 1-yr T Bills allotment for CPF OA is high, I am also thinking hard whether to do it or not. :-)

AK71 said...

Hi C,

Yes, we have to pay an application fee when we apply with our CPF-OA money.

That is cost which we don't have to bear using cash or SRS money.

Still, we should place a bid which we think makes sense.

If we are not successful, we lose the application money.

Our CPF-OA money is not deducted upon application but is only deducted if our bid is successful.

When I said using CPF-OA money to apply for T-bill was costly, it wasn't just the application fee I was referring to.

I was also referring to the time spent waiting in line at the bank and also travelling to and from the bank.

Very stressful to me.

Of course, there is also a possibility that if the cut-off yield happens to be exactly what we bid for, we won't get the full allotment.

If we ended up with a very small quantity of T-bills allotted, the quarterly fee of $2 could be costly too, percentage wise.

Imagine getting only $1,000 worth of T-bills allotted and having to paying $8 custodian fee for a full year.

That's 0.8% gone.

What if the cut off yield was 3.9% p.a?


Anyway, the next 1 year T-bill auction is in April.

You have plenty of time to consider and by that time, yields on short term treasuries would have changed.

However, if you decide to try for the next 6 months T-bill auction happening on 2 March, then, a competitive bid of above 3.88% p.a. and lower than 3.95% p.a. seems reasonable.

This is why some people have chosen to park their CPF-OA money with OCBC as they know they are getting full "allotment" at 3.88% p.a. ;)

C said...

Thank you AK. If wait till April, hopefully some bank comes up with a higher interest FD for our CPF OA as well? Wishful thinking on my part. :)

AK71 said...

Hi C,

Interest rates are probably staying higher for longer.

The Fed is probably going to hike interest rates two more times and possibly three more times this year.

So, your wish could come true. :D

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