OCBC offering 3.88% p.a. for 8-month fixed deposit using CPF-OA. Is it worthwhile?
08 Feb 2023
OCBC now allows you to make a 8-month fixed deposit with their CPF Ordinary Account (CPF OA) funds and earn 3.88% p.a.
Earlier, OCBC started offering a 12-month fixed deposit for CPF OA funds at 3.40% p.a. This is higher than the prevailing CPF OA interest rate of 2.5%.
Here's what we found out about the OCBC fixed deposit for CPF OA funds.
What you need to know about the OCBC 8-month fixed deposit using CPF-OA
This works in the same fashion as any other fixed deposits, except that the money is coming from your CPF OA instead of cash.
The minimum sum to put into this fixed deposit is S$20,000. Do bear in mind that you will need to have another minimum sum of S$20,000 in your OA.
Is is worthwhile to use CPF funds for OCBC fixed deposit?
If you are familiar with using CPF OA funds to buy T-Bills Singapore, you will know that you will lose interest earned on your CPF OA whenever the funds leave the account.
To reiterate, the CPF balances used for interest computation are affected by the transactions in your account.
Withdrawals/deductions in this month will not earn interest from this month onwards. Contributions (including refunds) received this month start earning interest next month.
In essence, the CPF interest payment is computed based on the lowest balance for the month, rather than the month’s average balance.
Let me show you what this means in a simplified manner. Depending on your application date for the 8-month fixed deposit and how fast the money is transferred back to your CPF OA, you might face a situation where you lose 10 months’ worth of interest, instead of 9 months.
|Date of application/deduction of money from CPF OA||Date which money is credited into CPF IA||Date which money is transferred back into CPF OA (assuming 2 weeks)||Number of months in which you do not earn interest in your CPF OA|
|1 Feb 2023||1 October 2023||15 Oct 2023||9|
|20 Feb 2023||20 October 2023||4 Nov 2023||10|
Here's an illustrative example assuming you put S$20,000 of your CPF OA funds in the OCBC 8-month fixed deposit at 3.88% per annum, and a 2-week transfer period back to CPF OA.
|Date of application/deduction of money from CPF OA||Approximate interest earned from 8 month fixed deposit at 3.88% p.a.||Interest loss from CPF OA||Approximate net gain (excluding fees)|
|1 Feb 2023||$517||$375||$142|
|20 Feb 2023||$517||$417||$100|
Do take note that the usual transaction fees apply. Hence your net gain might be lower than the illustrative example presented above.
What are the disadvantages of putting your CPF OA funds into OCBC fixed deposit?
Here's the catch about putting your money into OCBC fixed deposit using your CPF OA funds - you will have to visit the branch and apply (happy waiting).
You cannot do it through internet banking (i-banking).
Here's a reminder: At the end of 8 months, your principal and interest will be credited to the CPF Investment Account (CPF IA), and you will need to transfer the money back to CPF OA before you can start to accrue interest in your CPF OA account again.
Is it better to put your CPF OA funds into Singapore T-bills or fixed deposit?
We've seen the yields on the 6-month and 1-year T-bill coming down in recent weeks.
The yield on the 6-month T-bill fell to 3.88% p.a. in the latest auction on 2 Feb 2023. The yield on the 1-year T-bill also fell to 3.87% in the latest auction on 26 Jan 2023.
The yield on the OCBC 8-month fixed deposit for CPF OA funds of 3.88% would be almost similar to the latest cut-off yields on the 6-month and 1-year T-bills.
The advantage of putting your CPF OA funds into OCBC fixed deposit is that you would know the yield you are getting in advance. However, you will not know the yield you are getting on the T-bill before the auction.
However, the disadvantage of putting your CPF OA funds into OCBC fixed deposit is that you will have to go down to the branch. On the other hand, you can now use DBS internet banking to purchase T-bills using your CPF OA funds.
Is it better to put your CPF OA funds into the 8-month of 12-month fixed deposit?
You may have noticed that the yield on the 8-month fixed deposit of 3.88% is higher than the 12-month fixed deposit of 3.40%.
This may come as a surprise to some, as the interest rates are typically higher for longer tenures in the past.
However, what we have seen in recent months is a yield curve inversion. In other words, the yield is higher for shorter maturities (eg 6 months) compared to longer maturities (eg 10 year).
This is due to expectations that the US Federal Reserve may start to cut interest rates later this year, which also lead to lower interest rates in Singapore eventually.
Here's what we calculated - you'd be able to earn a higher total interest by putting your CPF OA funds into the OCBC 8-month fixed deposit at 3.88% than the 12-month fixed deposit at 3.4%, assuming that you'll lose a similar amount of additional CPF interest by doing so.
Final verdict on OCBC fixed deposit using CPF OA funds
It's nice to see that there are now more options for earning a higher return in a safe way using our CPF OA funds.
The OCBC 8-month fixed deposit for CPF OA funds allows you to earn a higher interest rate even after taking into consideration the loss of CPF interest. However, you will have to physically go down to OCBC to place your CPF OA funds into fixed deposit.
Here's a pro tip for those who've read till the end: Some in the Beansprout telegram community have shared that you can still place a fixed deposit with OCBC using your CPF OA funds even if OCBC is not your CPFIS-OA agent bank! Do join if you would like expert tips like these!
If you're interested in T-bills, click here to find out more about Singapore Treasury Bills (T-bills) and why you should consider them
Also, we share how to apply for T-bills using your CPF OA through DBS internet banking
Lastly, learn how to get started with investing using your CPF if you do not have a CPFIS account.
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