Forum: OA returns boosted by 2.5% minimum interest and extra interest over last two decades

Forum: OA returns boosted by 2.5% minimum interest and extra interest over last two decades 

https://www.straitstimes.com/opinion/forum/forum-oa-returns-boosted-by-25-minimum-interest-and-extra-interest-over-last-two-decades

2023-12-29

We refer to Mr Goh Geok Huat’s letter “Three ways to make saving in Ordinary Account more appealing” (Dec 22).

Central Provident Fund (CPF) interest rates are pegged to returns on investments of comparable risk and duration in the market. As Ordinary Account (OA) savings can be withdrawn at any time for home purchases or other specified purposes such as investment, the OA interest rate is pegged to the three-month average of the three local banks’ savings deposit and 12-month fixed deposit interest rates.

However, the CPF has two important features which do not apply to bank deposits. First, over the past two decades of protracted low-interest rate environment, the Government has continued to pay the 2.5 per cent minimum interest on OA monies.

Second, the Government continues to pay 1 per cent of extra interest on the first $60,000 of combined CPF balances for all members, as well as an additional 1 per cent extra interest on the first $30,000 of combined CPF balances for members aged 55 and above.

The CPF Board’s practice of computing CPF interest on a monthly basis and crediting interest earned yearly should be seen in the context of these other features. While changing the computation method and crediting frequency can translate into marginally higher CPF interest payments, the aforementioned measures provide CPF members with much higher interest and a greater boost to their CPF savings. 

The Government will continue to review the CPF interest rates periodically to ensure their relevance in the prevailing operating environment.

Fereen Liew (Dr)

Divisional Director

Income Security Policy Division

Ministry of Manpower

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