The transfer earns you an extra 1.5% but is IRREVERSIBLE. Have you ever wondered why the govt is so eager to give you that extra 1.5% to lock up your money? Why are they advertising to give you this extra 1.5%?
“Higher returns means higher risks. So when somebody tells you, ‘you get 1.5 per cent at the bank, I give you 5 per cent’, read the small print carefully.” - MM Lee (ST Online, “Lehman investors ‘aware of risks’”, 11 Nov 2008)
I was tempted but after listening to what MM Lee said about investments that return 5% per annum and how people deserve to lose their life savings going for 5% returns...I decided to give this transfer thingy a miss.
How does the CPF generate its returns anyway? CPF gets its returns lending money to the GIC. GIC then invests this money in bonds, stocks, foreign assets etc to generate this return and give it back to the CPF. By moving your money into SA, your money can be lent out to the GIC for longer periods. I was trying to find the prospectus for GIC so that I can read the fine print and go in with my "eyes open". However, there is not much Singaporeans can know about GIC except some of its speculacular investments in western banks and occasional release of its performance averaged over many years so you can't tell how it is doing for a particular year and what it is doing with your money exactly.
I'm really curious why there is so much advertising urging people to transfer their money to the SA.
".....because how can they pay you 5 per cent unless they are in dire need of the money?" - MM Lee, 11 Nov 2008
"Sir, did you ask that question when Citibank offered to pay 7% for the $10B GIC invested in their convertibles" - Lucky Tan.
In the US, when a stock falls below $10 it is a bad omen. The chance of it getting back above $10 is small. Citibank's stock fell below $10 yesterday and it trading at $8.75 right at this very moment. Although the GIC bought "ethernal" convertibles rather than stock...the fall in Citibank's stock can trigger a downgrade that will make the 7% return look like a raw deal relative to the risks.
UPDATE: Yesterday night while you were sleeping the DOW went up something like 550pts, one of the largest one day gain in history. Citigroup, however, was unable to close up falling to $9.45. I really wonder what is on the books of Citibank?....