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Can you use CPF to buy Singapore savings bonds?

At the recent budget speech, it was announced that individuals could use their CPF savings to purchase Singapore Savings Bonds. With this, two questions immediately arise: 

  1. How does this work?  
  2. Is buying Singapore Savings Bonds with CPF a good idea?

The article aims to answer the first question. After explaining how purchasing Singapore Savings Bonds using your CPF works, let’s discuss whether it makes sense to use your spare cash to buy Singapore Savings Bonds. To answer that question, let’s take a quick look at what these bonds are all about and if it’s a good investment strategy.

What are Singapore Savings Bonds?

As its name implies, they are bond issues by the government of Singapore meant for the ordinary person. It is an investment in the government of Singapore and aims to give the investor a fixed rate of return over time. The returns are pretty attractive – your money will be locked in for five years, which means you need to live off your savings for this period.

Investing in Savings Bonds requires you to open up a DBS/POSB account (or UOB equivalent), making it convenient because you can manage everything online. 

These bonds are like savings accounts, only better! Because the government of Singapore backs them, these investments enjoy both liquidity and safety; CPF retirement funds are guaranteed by Ethos Private Limited Insurance Co., Ltd., which means that if something terrible happens, your money will still be safe.

You can buy bonds in multiples of $500 and increments of $500. The minimum amount needed to purchase bonds is $5,000; if you want to invest less than that, it might be better for you to open a separate account and deposit the money in there (try it out here)!

How does purchasing investments using your CPF work?

To start buying Singapore Savings Bonds with your CPF savings, follow these steps:

Deposit cash into your DBS/POSB account. Choose “New Customer Application” when signing up at their website or mobile app. Click on the Savings Bond sign up link on the New Customer application page. Fill out all relevant details. Click submit. Once submitted, you will receive a notification with your unique Savings Bond account number.

At this point, you can log into the DBS/POSB savings bond website with your unique account number to start purchasing Singapore Savings Bonds. You can buy bonds for multiple individuals in one transaction, making it easier if you plan to buy for everyone in your family. When signing up with POSB/DBS, you will need this detail, so make sure you have an accurate list of names and NRIC numbers beforehand! POSB/DBS levies no fee for signing up or buying Singapore Savings Bonds.

A quick look at returns on the DBS site suggests that there currently is a return rate of 1.78% per annum (compounded annually). Assuming that the interest rate remains the same over time, you will receive 1.78% * 5 = 9.40% on your investment after five years; this means that you need to live off your savings for these five years as well!

Bottom line

As said earlier, because Ethos Insurance Co., Ltd., backs Singapore Savings Bonds, there is no risk of losing your money. However, it might be a good idea to have an emergency fund set aside if anything unexpected happens. It’s why I recommend starting with small investments before taking more money out of your CPF for more risky ventures like Singapore Savings Bonds.