Will CPF interest rates change after recent rate hikes?

2.5% and 4% are two figures etched in Singaporeans’ minds as rates associated with CPF. 

But what may be less well understood is how these figures are derived, and the benchmark rates that determine it. Let’s take a look at how these CPF interest rates come about, and how they’ve changed over the years. 

What are the CPF historical interest rates?

CPF interest rates, be it for Ordinary Account (OA), Special Account (SA), Medisave (MA) or Retirement Account (RA), have stayed at the floor rate of 2.5% p.a. and 4% p.a. for a very long time. Based on figures on the CPF website, these interest rates have remained the same for the past 23 years, since July 1999. 

While the interest rates have stayed the same thus far, this does not mean that they will always be fixed. CPF interest rates are based on the higher of a floor rate and a benchmark interest rate, and are assessed on a quarterly basis.

How are CPF interest rates calculated?

CPF OA interest rates

The benchmark interest rate is computed based on the three-month average of major local banks' interest rates, using the formula of 80% fixed deposit rates and 20% savings rates. This is subject to the legislated minimum interest of 2.5% p.a.

Since July 1999, the benchmark interest rates have been persistently below the floor rate. The benchmark rate has ranged between 0.09% for Q3 2022 and 2.16% for Q3 2000. 

As banks’ fixed deposit rates and savings rates have decreased over the years, despite higher interest rates, any change in OA interest rates in the near term is highly unlikely.

CPF SA, MA, and RA interest rates

Since 1 Jan 2008, interest on savings in the SA, MA and RA has been pegged to the 12-month average yield of the 10-year Singapore Government Securities (SGS), plus 1%.

Although the floor rate for OA is legislated, the SA, MA, and RA floor rate is subject to an annual revision. Their current floor rate of 4% has been recently renewed for one more year, for 1 January 2023 to 31 December 2023.

Since 2008, the benchmark interest rates have been below the floor rate, but recently edged closer to 4%. It ranged between 2.01% in Q2 2021 and 3.9% in Q1 2008. 

With the August 2022 Singapore Savings Bond's average 10-year return at 3%, and recent 10-year SGS yields exceeding 3%, there is a fair chance that the SA, MA, and RA rates will be revised if yield of 10-year SGS persist above 3%.

Impact of a higher SA and RA rate

With a higher SA and RA rate, we can expect CPF members to enjoy the following benefits:

1. Greater CPF LIFE payouts, with higher interest rates
2. Faster growth in CPF balances across SA and MA balances, meaning that you could reach the Full Retirement Sum (FRS) and Basic Retirement Sum (BRS) faster (assuming it stays unchanged)

Should your financial plans change with higher SA rates?

It is important to note that the higher interest rates in Singapore now are mainly driven by aggressive Fed rate hikes. It is also possible that the Fed slows or even reverses rate hikes to combat the risk of recession. 

Therefore, CPF members should carefully consider any decisions that may have long-term implications, such as:

1. Doing an irreversible OA to SA transfer as SA monies have limited use and can only be withdrawn at age 55;
2. Making Retirement Sum top-ups into SA just for the higher interest;
3. Stopping or pausing long-term CPF OA investment plans to do a SA transfer.

Ultimately, CPF forms a huge part of our wealth and should be managed prudently. Savings used for CPF goes beyond saving for your retirement: it can be used for home ownership and healthcare as well. You should consider your personal goals before you manage your CPF savings actively.

You can learn more about recent CPF changes, and read through our latest CPF updates on Endowus Insights.

Read more:

• With rising property prices, here's why homeowners should invest their CPF savings
• Why women should look closer at CPF investing

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This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endow.us Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

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