At SGMoneyMatters, we want to help you make informed decisions, invest well and retire with style.

We share with you some of the latest news and insights that may affect your financial well-being.

Here are the topics for this week:

  • CPF Special Account is paying 4.04% interest rate. What does this mean? Will it go higher?
  • The latest 6-month Singapore T-bill yield has risen to 4.07%. What are the causes and implications?
  • Oil prices hit a 1-year high of $95. What are the risks and opportunities?

Let’s dive in!

#1. CPF Special Account is paying 4.04% interest rate

The interest rate for CPF Special Account (SA) has increased to 4.04% per annum for the fourth quarter of this year, up from 4.01% in the previous quarter. This is the second consecutive increase since the floor rate of 4% was established in 2008.

I wrote an article back in 2019 to talk about how the interest rate is calculated. You can read it here. At that time, the interest rate was still ultra-low, but things have changed a lot now.

Additional Reading: CPF Interest Rate: Is it Really Guaranteed?

Essentially, CPF utilizes a formula that factors in a fixed rate of 4% per annum or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is higher.

This formula undergoes quarterly adjustments, and the last increase occurred in Q3. As we approach Q4, 2023, based on the 12-Month Average Yield of 10YSGS (August 2022 to July 2023) at 3.04%, the CPF formula indicates an interest rate of 4.04%, since 3.04% + 1% = 4.04%.

The SA is meant for retirement savings and can be used for investments under the CPF Investment Scheme (CPFIS). The SA interest rate is higher than most bank deposits and fixed-income instruments available in the market, making it a very attractive option for long-term savings.

Will CPF SA interest continue to go up?

In my recent article and webinar about the US Credit Rating downgrade, I highlighted the implication of rising long-term bond yield.

I think we are at a time when the inverted yield curve is being normalized. That means the long-term bond yield will go up quickly.

Since the CPF SA interest rate is tied to 10-year Singapore Government Securities. I think there is a high chance the CPF SA interest rate will have more upside.

#2. The latest 6-month Singapore T-bill yield has risen to 4.07%

The cut-off yield on the latest 6-month Singapore T-bill (BS23119H) has risen to 4.07% in the auction that closed on Thursday. This is a jump from the cut-off yield of 3.73% in the previous auction, and the first time that yields have crossed the 4% mark since January.

I think the reason for the higher T-bill yield is likely due to temporary lower demand for the T-bills, as investors seek higher returns elsewhere or anticipate higher inflation or interest rates in the future. It may also reflect the impact of higher US bond yields, which have risen recently due to the Fed’s hawkish stance on monetary policy.

I have a comprehensive article to explain the Fed Rate Hike, you can read it here.

Additional Reading: Fed Fund Rates: Impact and History That Only the Pros Know

The higher T-bill yield may affect your savings and investments in several ways. Here are some points to consider:

  • If you are holding T-bills or planning to buy them, you may benefit from the higher yield, as it means you will receive more interest income when the T-bills mature. However, you should also be aware of the opportunity cost of locking up your funds for six months, as you may miss out on other investment opportunities that offer higher returns or liquidity.
  • If you are using your CPF funds to buy T-bills, you should note that the latest issuance will lead to a loss of eight months of CPF interest (i.e. two additional months of CPF interest loss). This is because CPF pays interest based on the calendar year, while T-bills pay interest based on the maturity date. Therefore, you should weigh the pros and cons of using your CPF funds for T-bills, and compare the returns with other CPF-approved investments or leaving your funds in your CPF accounts.
  • If you are investing in other fixed income products, such as bonds or bond funds, you should monitor the movements of the T-bill yield, as it may affect the prices and yields of these products. Generally, when T-bill yields rise, bond prices fall and bond yields rise, and vice versa. This is because investors will demand higher returns for holding longer-term bonds when they can get higher returns for holding shorter-term T-bills.

For more information on Singapore Government Bonds such as the T-bill, you can read this article:

Additional Reading: What Are Singapore Government Securities (SGS) and How To Invest in Them

#3. Oil prices hit 1-year high of $95

Oil prices have been on a steady rise since the start of the year, reaching their highest level in over a year this week. The main factors behind the increase are:

  • Supply constraints due to production cuts by OPEC+ countries, which have been extended until the end of the year.
  • Demand recovery as the global economy reopens from the COVID-19 pandemic.

What is less noticeable is that the US Strategic Petroleum Reserve has been depleting since last year to control oil prices and combat inflation.

In case you are not aware, OPEC+ represents around 40% of world oil production and its main objective is to regulate the supply of oil to the world market. The leaders are Saudi Arabia and Russia, which produce around 10 million barrels per day (bpd) of oil each.

So at a time when the US needs oil and Saudi Arabia and Russia are having tensions with the US, it is no surprise that the oil price will be under upward pressure.

The high oil price presents both risks and opportunities.

The higher oil prices have implications for both consumers and businesses. As oil is a key input for many goods and services, such as transport, electricity, and food.

On the other hand, they may also boost the earnings of oil-related companies, such as rig builders, offshore support vessels, and refineries.

I have highlighted this in our webinars and client meetings for potential investment opportunities to Invest in oil-related stocks or exchange-traded funds (ETFs) that track the performance of oil prices or oil companies.

That’s all for this week’s newsletter. I hope you found it useful and informative. If you have any feedback or questions, feel free to comment below.

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About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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