Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Saturday, 9 May 2015

CPF Interest Versus Fixed Deposits

This post will contain a tip on how to increase your CPF returns, namely in the form of interest.

One way to earn more interest from CPF is to transfer your extra money, into your CPF Special Account.

Your Ordinary Account currently earns 2.5%, Special Account and Medisave Account earns 4% interest while your normal bank Fixed Deposit earns less than 2% annually.

Real Life Example:
My mum is 46 this year. She wanted to buy a 10 year Fixed Deposit which earns less than 3% per year. I suggested that she put her money into her CPF to earn the CPF interest.

Based on her current age, her contribution will be split into the 3 accounts in the following allocation:
OA: 51.36%
SA: 21.62%
MA: 27.02%

Assuming she puts in $1,000, the allocation will be as follow:
$513.60 into OA
$216.20 into SA
$270.2 into MA

Based on the above, my mum will get an average 3.23% interest on her $1,000 per annum.
She will also get to withdraw the money out when she reaches age 55.
Of course, if my mum fails to meet her minimum sum, the money that goes into her CPF will not be returned to her at the "end of the maturity" - instead she will get it as future monthly payouts.
But there will be other factors to be considered and there will be ways to withdraw the money out, which will be explained in future posts.

All in all, if you wish to have a higher interest rates than Fixed Deposit and risk-free, you can consider putting your money into your CPF, especially if you are near 55 years old - where the risk-return profile is more skewed in your favour.
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  1. My guess is you are not old enough to see real life example of shifting goal posts in CPF SA and RA over the years.

    1. Hi,

      Thank you for pointing that out.
      We are currently working on a post about the "shifting goal posts" of CPF SA & RA.
      Do stay tune to that post, it might be able to answer your questions - if any.
      As I have mentioned, there are a lot more factors to consider when choosing between Fixed Deposit or CPF. But in this post, we would like to mainly touch on the interest rates only, because to go into full length of the whole topic would make the article really really long.
      Hope you understand.

      Of course, we will touch on the other factors that will affect if you should put your money into CPF.
      We're trying to keep the posts short and sweet so there's a limit to how much factors we can put into 1 post.

  2. I think it really depends on her withdrawal date. Because of the liquidity issue of CPF, in order to put money into CPF, she better have a healthy stash of emergency cash sitting. Micro wise, she's getting a healthy interest. But if you include the sum of money that you have to set aside just in case you need the money that you had put into the CPF, the overall interest should be much lesser.

    As an example, if you put $1k into CPF and an extra $1k under your bed, your effective interest rate is 1.62% pa. That isn't too different from putting 2k straight into fixed D. What I'm saying is that even though fixed D gives a lower apparent interest rate, it gives a peace of mind. There's no policy risk, much unlike CPF.

    Be careful not to be penny wise but pound foolish ;)

    1. Hi,

      I believe Fixed Deposit would also have a penalty for early withdrawal.
      But I must thank you, because you have gave me an idea for another post - CPF vs Annuity.
      Thank you :D

      But yes, there are policy risk involved in putting your money into CPF to earn the interest, there are also factors such as "do you have the minimum sum in your CPF" and other contribution issues that if discussed in this article will make it too long.
      However, we are working on discussing these issues in other posts.

      We main to make our posts short and sweet for our readers.
      So my apologies if we are unable to fully dive into 1 topic in 1 post.
      We will split the topic up to several posts and link them together.

      Thank you

  3. You can make voluntary contributions directly to the special account (subject to annual caps) which case she will earn 4% minimum on the entire contribution...

    1. Hi,

      We have checked. Currently we are unable to solely contribute only to Special Account.
      We have only 2 options:
      a) Deposit into 3accounts based on the given allocation rates
      b) Deposit all into medisave account, up to a certain contribution limit.

      We are currently working on 2 posts about the above 2 options.
      So do stay tune to our blog for more updates.

      Thank you

    2. U can. Check out point B. The assumption is that the person must be less than 55 yrs old

    3. Hmm, this is so different from what I found
      What I found was from the link below:

      Guess I'll have to read up more and come back with the correct/best answer :D
      Thanks for pointing this out! :D

  4. That is because the pdf you clipped is under voluntary contribution. The one that u put into SA is not voluntary contribution, it's called cpf minimum sum topping up scheme. So both are correct.

    Read the article that I clipped earlier on. I noted down all the contributions you can do to your cpf, regardless of what name it's called. I'm just not sure if the scheme are all still valid because of the most recent changes in cpf.

  5. I've been contributing only to my SPECIAL ACCOUNT monthly.

    1. Hi Jan,

      Thank you for your comment.
      I think you have been contributing to your SA via the "Retirement Sum Top Up Scheme".
      This is a type of voluntary contribution made directly to your CPF and contributions qualify for tax deductible.
      We have posted an article on this too.
      The link is here:

      Thank you! :)