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Why CPF Needs To Review Interest Rates For Our Ordinary, Special, MediSave And Retirement Account

The CPF Act only legislates a minimum interest of 2.5% on our CPF savings.

From time to time, we may see in the news that interest rates on our CPF accounts may be maintained or slightly adjusted. For example, the Straits Times recently carried the piece “Slight rise in CPF interest rate to 4.08% for Special, MediSave and Retirement accounts in Q3”.

For the layperson reading it, this may not seem like a big deal. The interest rates for our Special, MediSave and Retirement Accounts have only risen very slightly above the 4.0% floor rate, while our Ordinary Account continues to pay the same 2.5% floor rate despite the higher interest rate environment today.

While interest rates have not risen by much, it is still the duty of local media to keep Singaporeans up-to-date with the latest changes in CPF interest rates. Perhaps in the decades previously, such information may not have been so transparent and/or easily accessible on the CPF website, and the local media had a part to play.

CPF Act Protects Our Interest Rates

According to the CPF Act, the CPF Board must declare a rate of interest which “is not less than 2.5% per annum”. This represents the legislated floor rate we receive on our Ordinary Account (OA). And the declarations are done through the local media.

This also means the 4.0% p.a. floor rate that we earn on our Special Account, MediSave Account and Retirement Account savings is not mandated in the CPF Act.

This is the same for the additional 1% we receive on the first $60,000 of our combined CPF balances (with up to $20,000 from Ordinary Account) as well as the extra additional 1% interest we receive on the first $30,000 after our Retirement Account is opened at age 55.

While the floor rate for Special Account, MediSave Account and Retirement Account is not in the CPF Act, the CPF Act does state that the CPF Board “may declare different rates of interest for different part of the amount standing to the credit of a member in the Fund”.

Nevertheless, we don’t expect the minimum interest rates for these CPF accounts to be suddenly removed as the government has committed to them.

Read Also: What Would It Take For CPF Interest Rates To Increase Beyond 2.5% (For OA) And 4.0% (For SA and MA) 

CPF Interest Rates Are Based On Formula, And Reviewed Quarterly

From July to September 2024, we will earn 4.08% p.a. on our Special Account, MediSave Account and Retirement Account balances, while interest rate for our Ordinary Account will remain at the floor rate of 2.5% p.a.

While the CPF Act and government commitments protect the floor rate for our CPF accounts, interest rates can rise based on two formula – 1) for the Ordinary Account (i.e. shorter-term and more liquid CPF account); and 2) for the Special, MediSave and Retirement Accounts (longer-term CPF accounts).

Here’s how much the individual CPF accounts pay us:

CPF  Accounts Interest Rate Formula Floor Interest Rate Review Frequency
Ordinary Account (OA) 80% : 20% fixed deposit to savings rate of preceding 3-month average of major local banks’ interest rates
Currently equates to: 2.5% per annum for Jul-Sep 24
2.5% per annum Quarterly
Special Account (SA), MediSave Account (MA), and Retirement Account (RA) 12-month average yield of 10-year Singapore Government Securities plus 1%
Currently equates to: 4.08% per annum for Jul-Sep 24
4.0% per annum Quarterly

Read Also: Here’s How Our CPF Interest Rates Are Calculated And Why Those Rates Are Almost Never What We Actually Earn

We can review this information on the CPF website today. For example, if we used the formula above to derive the ordinary Account interest rate for Jul to Sep 2024, we will be earning 0.45% (based on the interest rates that the local banks are currently paying) on their savings accounts and fixed deposits. Hence, we earn the floor rate of 2.5% p.a. instead.


CPF interest rates for Ordinary Account

Source: CPF

Similarly, we can review the calculated interest rates for our Special Account and MediSave Account. We can see that the calculated interest rate is 4.08%, and hence we earn this rate compared to the lower committed floor rate of 4.0%.

Special Account, MediSave Account and Retirement Account interest rates

Source: CPF

Obviously, an argument can be made that banks are artificially suppressing board rates for fixed deposits (by offering promotional rates) and savings accounts (by offering high-interest savings accounts), but this is for another discussion.

Read Also: Why Are Banks’ Fixed Deposit (FD) Rates Not Increasing Despite Interest Rates Soaring

We Have Earned Higher Interest Rates From CPF In The Past

While we have earned the floor rates for a long time, and it has only come up slightly in the past year or so, we have earned much higher interest rates on our CPF accounts in the past.

From the table below, we can see that before 1999, we earned more than 4% on our Ordinary Account balances and over 5% on our Special Account balances.

Going further back, we received up to 6.5% interest on our Ordinary Account balances in 1986.

Source: CPF

Why Are Such Interest Rate Reviews Done And Announced?

For the Ordinary Account, the legislated floor rate is 2.5%, and the CPF Board has a responsibility to declare the rate. However, the frequency of these declarations is not found in the CPF Act.

For the Special Account, MediSave Account and Retirement Account, commonly referred to as SMRA, there is no legislated floor rate above the 2.5% level. Since 1 January 2008, the government pegged the interest rates on these accounts to instruments deemed to carry similar risks – the  12-month average yield of the 10-year Singapore Government Securities plus 1%.

At the same time, the government also committed to providing a floor rate of 4.0% on the SMRA accounts. This has been ongoing, and the reviews are meant to inform us that the floor rate will continue. In CPF’s latest announcement, the floor rate for the Special Account, MediSave Account and Retirement Account will be extended to 31 December 2024.

Looking back, we can understand why the reviews and announcements may be important:

From 1 October 2001 to 2008, the government had committed to the SMRA paying out 1.5% above the Ordinary Account. This was then changed to the current formula but with a similar 4.0% interest floor rate.

From 1 July 1998 to 1 October 2001, the MediSave Account was not part of the government’s commitment to pay a floor rate of 4.0%. The government had only committed to paying an additional 1.5% on top of the Ordinary Account interest, on our Special Account and Retirement Account. At the time, the only thing protecting our MediSave Account interest returns was the legislated minimum of 2.5% to be paid on our CPF savings.

Source: CPF

Before that, between 1 July 1995 to 1 July 1998, the government commitment was to pay the Special Account and Retirement Account 1.25% above the Ordinary Account interest.

As you can see, the government commitments to different accounts can change too, and the announcements serve as timely updates on the CPF floor rates as well as the extension of the floor rates on our CPF accounts.

The announcements for the interest rates reviews are delivered four times a year (quarterly), about two weeks before the new rates take effect.

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