18 Jan '11, 1pm

The Partial Myth Of The "Asset Rich, Cash Poor" Singaporean: Gilbert Koh, Mr Wang Says SoIf you actually expect

Mr Tan Ah Kow is a Singaporean in his mid-30s. He has about $80,000 in his POSB savings account, and about $80,000 in his CPF Ordinary Account. Every month Mr Tan needs to pay about $800 for his HDB loan. Should he pay with his POSB money, or with his CPF money? Note that Mr Tan's CPF OA earns interest at 2.5% per annum. Meanwhile, Mr Tan's POSB money earns interest at a much lower rate of about 0.125% per annum (20 times less). If this difference in interest rates was the only consideration, Mr Tan would surely use his POSB money to pay his mortgage. After all, his POSB money is earning so little interest. However, in reality, most likely Mr Tan would use his CPF money to pay his mortgage. Why? Because Mr Tan wants to reserve his POSB money for all his other financial needs and purposes. In other words, Mr Tan wants to maintain his core liquidity. Mr Tan also knows that i...

Full article: http://mrwangsaysso.blogspot.com/2011/01/partial-myth-of-...

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