CPF as a social security scheme is aimed at facilitating Singaporean employees to save more. These savings are deposited into 3-4 sub-buckets to cater to various financial needs of CPF members at various points in life. From housing needs to insurance to investment options, CPF savings help an individual at numerous financial junctures. CPF special account is meant specifically for financial needs after retirement and for investment in retirement related financial products.
Features of CPF Special Account
- The part of CPF savings that gets deposited in special account is reserved for providing regular income after retirement. These savings can also be used to invest in retirement-related financial instruments.
- The guaranteed rate of interest offered on savings under special account is more than that offered on savings under ordinary account and is up to 5% per annum. CPF monies earn a safe interest amount since these are invested in Special Singapore Government Securities which the Singapore Government itself, guarantees. This means that savings in CPF special account ensure absolute and reliable returns.
- The most outstanding feature of CPF special account is that the rate offered under this beats inflation. This is way better than investing your money in stock-related instruments that get affected by market movements. This rate is also better than that offered by insurance policies (around4%) and savings bonds which hover around 2-3% per annum.
- Savings in CPF special account cannot be withdrawn until the age of retirement. Also, investment into other financial products is also allowed on only a certain percentage of special account savings.
- The percentage savings that get deposited in special account is a function of the age of CPF member as well as the current allocation rate decided by the Singapore government.
CPF Special Account Interest Rate
Currently, an interest rate of up to 5% per annum is payable on savings in special account. This rate of interest is reviewed on a quarterly basis. An extra 1% rate is paid on the first combined balance of S$60,000 in a member’s CPF account.
Rate of interest offered by government on CPF special account is one of the highest as compared to other financial instruments in the Singapore market. The returns generated are multiplied even further due to the compounding nature of the interest rate.
Difference between CPF Special Account (SA) and other CPF Accounts
The most prominent difference between Special Account and other CPF Accounts is that special account savings are especially geared towards saving up for retirement needs. Other accounts like ordinary account and medisave account are aimed at saving for housing/insurance/education needs and medical emergencies, respectively. The rate of interest offered on special account is the same as that offered on savings in medisave account and retirement account. However, this rate is more than that offered on savings in ordinary account. The reason behind this difference in rates is because savings in special account are long-term in nature and withdrawal isn’t easy.
CPF Special Account usage
CPF is a mandatory investment scheme for all employed Singaporeans. The savings thus accumulated get redistributed to 3 (4 in case CPF member is above 55 years of age) different accounts which serve a different financial purpose each. Here are some of the ways in which savings in CPF special account are meant to be used.
- CPF special account savings can be invested in any of the approved investment schemes. However, a minimum amount of S$40,000 needs to be set aside in the special account and any amount over and above this base amount can only be used for purposes of investment. CPF savings can be invested in financial instruments like fixed deposits, treasury bills, Singapore government bonds, bonds guaranteed by Singapore government, unit trusts, Annuities, ETFs, endowment policies, Investment-linked insurance products and statutory board bonds. Unit trusts that have a higher risk factor cannot be invested in using special account savings. Similarly, high-risk insurance products too cannot be availed using money from CPF special account.
- Financial products like shares, corporate bonds, property funds, gold ETFs and physical gold cannot be availed using savings from CPF special account.
- The most important role of special account savings is generating a substantial corpus for retirement years. Once a CPF member reaches 55 years of age, the savings from special and/or ordinary account are transferred to the retirement account. This retirement sum can then be used to join CPF Life which offers lifelong monthly payouts to CPF members. Or, the sum can be used to join retirement sum scheme which offers monthly payouts for around 20 subsequent years.
- The sum left in the ordinary and special accounts after setting aside retirement sum can then either be withdrawn by CPF members or be kept in the CPF account to earn attractive interest rates.
- Since, the rate of interest on savings in special account is higher than that of savings in ordinary account, members tend to transfer a part of their ordinary account to special account. This amount starts earning a higher special account interest rate from the month in which it is transferred.
- Even when the full retirement sum is met in CPF special account, a part of the subsequent CPF savings continues to get deposited in CPF special account.
Transfer of funds from CPF Special Account to Medisave Account
For a CPF member, if the medisave account does not have the Basic Healthcare Sum (BHS) then savings in the ordinary and special accounts can be used to make up for it. Transfer of funds up to the BHS amount are allowed. However, in order to be eligible for this fund transfer, CPF member needs to be 55 or above years of age and should have either the Full Retirement Sum (FRS) or the Basic Retirement Sum (BRS) along with some property pledge, in the retirement account. However, this transfer of funds is irreversible and the amount transferred will not be eligible for any tax benefit.
Special account savings cannot be transferred to ordinary account since these are meant to address the financial needs of CPF member post retirement.