Should your financial plans change with higher CPF Special Account rates?

Singapore's Central Provident Fund Board (CPF Board) in March 2024 said that there will be a change to the interest rates for the Special Account (SA) and MediSave Account (MA) in the second quarter of 2024.

Let's take a look at how these CPF interest rates come about, and how they have 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. In fact, the interest rate for the Special and MediSave Accounts will be at 4.05% p.a. in the second quarter of 2024, down from 4.08% in the first quarter.

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.

While the interest rates for CPF OA have remained the same, the government has increased the CPF monthly salary ceiling — which affects the maximum amount of CPF contributions you need to pay — in stages from $6,000 to $8,000 by 2026. The higher salary ceiling started on 1 Sep 2023 (increasing from $6,000 to $6,300), and will go up to $8,000 by 1 Jan 2026. This can mean more savings accumulating in your CPF OA over time.

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 is 4%.

On 6 December 2023, it was announced that the SA and MA interest rates will increase to 4.08% p.a. for the period from 1 January 2024 to 31 March 2024. This is due to a rise in the 12-month average yield of the 10-year Singapore Government Securities. Learn more about CPF interest rates here. The interest rates will change to 4.05% p.a. for the second quarter of 2024.

Since 2008, the benchmark interest rates have been below the CPF SA and MA floor rates, but began edging closer to 4% in late 2022. It previously ranged between 2.01% in Q2 2021 and 3.9% in Q1 2008. 

Impact of higher Special Account and Retirement Account rates

In the event of higher SA and RA interest rates, 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. 

Note, too, that the latest hike in the CPF SA interest rate, from 4% p.a. to 4.08% p.a., will give a mild bump to your total SA balance even over the long term. Let's illustrate this with a simple example: If you have $100,000 in your Special Account on 1 January 2024, this will grow to about $222,508 over a 20-year period based on the 4.08% p.a. interest rate.

That's about $3,396 more than the $219,112 you would have in your SA after 20 years based on an interest rate of 4% p.a., going by Endowus Research's calculations. This simple illustration assumes that (i) the SA interest rate stays at 4.08% p.a. till January 2044, and (ii) no additional contributions are made to your SA during that period.

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

1. Doing an irreversible OA to SA transfer — note that SA monies have limited use (SA monies cannot be used for mortgage and education payments) and they 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.

Using CPF savings to invest

CPF members can use your CPF OA savings for investments if your OA has more than $20,000. Or, you can use your CPF SA money if it exceeds $40,000.

As Endowus CEO Gregory Van explained in a webinar with CPF, if you had kept your money in OA, $100,000 would grow to 2.5x or about $254,000 from January 1990 to February 2023. If that money had been invested in globally diversified stocks, represented by the MSCI All-Country World Index (ACWI), you would go through many periods of losses and recoveries, but after enduring the ups and downs, your money would grow to 5.4x or about $541,000.

Compounding returns over time

That is what investing looks like. It’s about collecting returns for the risk you take, and compounding them over time.

Find out more about the advice Greg shared with webinar participants on CPF investments in this recap. To start investing your CPF with Endowus — Singapore’s first and leading digital advisor for CPF investing — click here.

Read more:

• Learn more about recent CPF changes
• Five things to note before investing your CPF OA monies
• 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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