An overview of the CPF interest rate system and its historical changes.
The Central Provident Fund (CPF) has been a critical part of retirement planning for Singaporeans since its inception in 1955. The CPF offers different interest rates for various accounts, such as the Ordinary (OA), Special (SA), MediSave (MA), and Retirement (RA) accounts.
Interest rates for these accounts are determined through a specific formula, depending on factors like the average deposit rates of major local banks and legislated minimum rates (interest rate floors). For example, the CPF Ordinary Account offers an interest rate of 2.5% per annum, or the average of local banks’ three-month deposit rates, whichever is higher. The current three-month average deposit rate stands at 0.66%, meaning the floor rate of 2.5% still applies.
For the Special, MediSave, and Retirement accounts, the interest rate is calculated based on the 12-month average yield of 10-year Singapore Government Securities plus 1%, or the floor rate of 4%, whichever is higher. The yield for the period from August 2022 to July 2023 was 4.04%, making the 4% floor rate applicable.
The government has announced an extension of the 4% interest rate floor for the Special, MediSave, and Retirement accounts until the end of 2024. This provides stability to CPF members amid an uncertain interest rate environment.
Historically, CPF interest rates were higher, especially from the 1960s to the 1980s, when global interest rates were elevated. However, in recent decades, global interest rates have been generally low, influencing the CPF rate structure. The CPF interest rate for the Special, MediSave, and Retirement accounts was raised to 4% in 1998 and has remained at that level since.
Additionally, the government has introduced supplementary interest for members with lower balances to further enhance savings for retirement. This includes adding 1% interest on the first S$60,000 of combined CPF balances and providing an additional 1% on the first S$30,000 for those aged 55 and above since 2015.
