Why I've switched to using CPF OA to pay for my property loan

Previously, I was paying the monthly mortgage on my housing loan using cash. With the change in the interest rate environment, doing so no longer makes sense, and here's why I'll be switching to CPF OA to make the monthly payment going forward.

As of writing, the CPF OA pays an interest rate of 2.5% p.a. (the legislated minimum) - see info below for details from the CPF website.

Source: CPF website

With the recent changes to the interest rate environment around the world as well as in SG, it is now possible to get risk-free yields higher than 2.5% p.a. - see my previous post on SGS T-bills. In fact, I recently applied for and was successfully allotted 6M T-bills at 2.93% p.a. and 1Y T-bills at 3.1% p.a.

In this context, earning 2.5% p.a. risk-free is sub-optimal. The rational options are either to (a) use CPF OA monies to pay for housing loan, and invest the freed-up cash in higher-yielding products, or (b) transfer monies from OA to SA (one-way, irreversible), to enjoy the higher SA interest rate. [There is also option (c) of investing OA monies via CPF-IS, the result is effectively the same as (a).]

I've decided to go ahead with (a). The monthly deduction will be greater than my monthly contribution to OA, plus I don't have much funds in my OA to begin with (having done OA->SA transfer a while ago, and also investing a portion of OA via CPF-IS) so I'll likely zero out my OA in a few months' time. At that juncture, I'll have to decide whether to switch back to cash to make my mortgage payments, or to liquidate some of my CPF-IS holdings.

Tldr; it's no longer good enough to earn 2.5% p.a. on CPF OA; you are leaving money on the table because you can now earn 3% or better, risk-free.

P.S. Some readers might have realised that the SA/MA interest rates will surpass 4% during one of the revisions ins 2023. This is a certainty, not a probability, given that 10YSGS is already passing 3% as of time of writing. For younger CPF members who have only known of 4% interest rate for SA/MA, this could be something of a historic moment. It also makes the OA->SA transfer slightly more attractive, but the fact remains that it is a irreversible transfer.

P.P.S. Even more astute readers might also realise that, while SA interest rates will go up, it is unlikely OA interest rates will increase anytime soon. The local banks' 3M FD rates are nowhere closely to 2.5% p.a. right now; in theory, they should be, since the 6M T-bill is at 2.93% p.a. However, these published FD rates aren't really meaningful, because almost always there are promotional FD rates offered by banks. Since the OA interest rate is pegged to the former, i.e. the published rates, we are not likely to see the OA interest rate increase beyond the current 2.5%.