CPF Special and MediSave Account interest rate climbs 0.03% to 4.04% in Q4 2023

SINGAPORE: The Central Provident Fund (CPF) Special and MediSave Account (SMA) interest rate is set to rise to 4.04 per cent annually in the fourth quarter of this year, according to a joint statement by the CPF Board and the Housing Board (HDB) on Thursday (21 Sep).

This marks the second consecutive quarterly increase, following the rate’s ascent to 4.01 per cent in the third quarter of this year, which was the first increase since the establishment of the 4 per cent floor rate in 2008.

The adjustment is attributed to the rise in the 12-month average yield of 10-year Singapore Government Securities (10YSGS), to which the SMA interest rate is tied, as explained by the CPF Board and HDB in their joint press release.

The RA interest rate for this year will be retained at 4 per cent per annum.

“The Government has extended the 4% interest rate floor for interest earned on all Special, MediSave and Retirement Account (SMRA) monies for another year from 1 January 2024 to 31 December 2024. ”

“This provides certainty for CPF members amidst the uncertain interest rate environment.”

The Ordinary Account (OA) interest rate will remain unchanged at 2.5 per cent for the same period because the OA rate is linked to the three-month average of interest rates from major local banks, which continues to be below the floor rate of 2.5 per cent.

“The Government is watching the interest rate environment closely to ensure that the CPF interest rate pegs remain relevant in the prevailing operating environment while taking into consideration the longer-term outlook.”

For CPF members under the age of 55, the first S$60,000 (US$43,900) of their combined balances will continue to earn an additional 1 per cent interest, with a cap of S$20,000 for the OA.

Members aged 55 and above will receive an extra 2 per cent interest on the first S$30,000 of their combined balances and an additional 1 per cent on the next S$30,000, also capped at S$20,000 for the OA.

Correspondingly, the concessionary interest rate for HDB housing loans, which is pegged at 0.1% above the OA interest rate, will remain unchanged at 2.6% per annum from 1 October 2023 to 31 December 2023.

The supplementary interest earned on the OA will be deposited into the member’s Special Account (SA) or Retirement Account (RA).

In cases where a member is above 55 years old and participates in the CPF LIFE scheme, the additional interest will still accrue on their combined balances, which encompass savings used for CPF LIFE.

The concessionary interest rate for HDB housing loans, tied to the OA interest rate with a 0.1 per cent margin, will remain steady at 2.6 per cent per annum during the same period. These interest rates will be effective from October 1st to December 31st.

Malaysia’s EPF declares 5.35% for 2022 conventional savings

In comparison, Malaysia’s Employees Provident Fund (EPF) declared a dividend rate of 5.35 % for Conventional Savings for 2022 in March this year, with a total payout amounting to RM45.44 billion (approximately USD 9.8 billion).

In 2022, Malaysia’s EPF declared dividends of 6.1% for conventional savings (for the year 2021) and 5.65% for Syariah savings.

WP MP Louis Chua calls for balanced CPF OA rates to safeguard Singaporeans’ retirement funds against inflation

In May this year, Mr Louis Chua, a Workers’ Party Member of Parliament for Seng Kang GRC, urged the government to review the Central Provident Fund (CPF)’s Ordinary Account (OA) formula.

He believes that the formula should be adjusted in a timely manner to ensure that Singaporeans’ retirement savings can keep up with inflation or at least reflect market interest rates.

Commenting on the SMA’s interest rate adjustment, Louis Chua said while it is “not much to shout about”, at the very least, it is pegged to 10YSGS’s yields with a floor rate to ensure a minimal level of interest returns for Singaporeans long term retirement savings needs.

Loius Chua who is also a CFA® Charterholder (Chartered Financial Analyst), highlighted that the OA interest rate remains unchanged at 2.5% for the same period, as major local banks’ interest rates over the last 3 months are computed to be at 0.66 per cent (for the period from February to April 2023).

“Whether it’s fixed deposit rates or savings accounts across the 3 local banks such as the UOB One, OCBC 360 or DBS Multiplier accounts, it’s quite clear that interest rates are significantly higher than the 0.66% which the CPF computed.”

Moreover,  Mr Chua pointed out that the rising inflation rate, which was 5.7% in April last month, with core inflation at 5%, “even if inflation rates come down…it could well settle at higher levels vs. recent history.”

Therefore, he asserts that it is crucial to reevaluate the OA formula, which has remained unchanged since 1999, to at least better take into account the current nature of fixed deposit and savings rates from the three local banks, even if the “CPF’s preference is not to consider inflation in the formula”.