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

Monday, 28 December 2015

Effective Interest Rates on CPF Accounts

17:12 Posted by cheez 1 comment
Is it always good to have a lot of money in your CPF?
Maybe, maybe not!
As the amount of money in your CPF account increases, the amount of interest you get from CPF increase (and they pay pretty high interest).
However, as your account balance grow, the effective interest rates you are getting from CPF also decreases.
What is Effective Interest Rates?
EIR is the total interest you are paid on the total amount of money you have.
Eg: Total CPF Interest for the year divided by your total CPF balance (express in percentage).

MORE LINKS
Accrued Interest More than Housing Profits?
What CPF means for those in their 20s?
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
The Christmas Stock Market Rally

For money in your Special, Medisave & Retirement Account (SMRA),
a) each account will earn a 4% interest on its money
b) first $60,000 will earn an extra 1% interest
c) in 2016, those age 55 & above will earn an extra 1% interest on the first $30,000

Below is how the interest curve will look like

2015:

















The first $60,000 in your CPF will earn an interest of 5% (excluding Ordinary Account)
The rest of the money in your CPF SMRA will earn 4% interest.
Because the first $60,000 is earning an extra 1%, your effective interest rate on your CPF will always be above 4%.
However, the effective rate will keep decreasing to close to 4% as your SMRA grows larger.


2016:

















If you are belong age 55 in 2016, the chart for 2015 will still apply to you.
If you are 55 or above in 2016, the new chart above is for you.
The first $30,000 in your CPF will earn an interest of 6% (excluding OA)
The next $30,000 in your CPF will earn an interest of 5% (excluding OA)
The rest of the money in your CPF SMRA will earn 4% interest.
Because the first $30,000 is earning an extra 2% while the next $30,000 is earning an extra 1%, your effective interest rate on your CPF will always be above 4%.
However, the effective rate will keep decreasing to close to 4% as your SMRA grows larger.


PS: It is actually more complex than this because there is an Ordinary Account section that also earns this extra 1%. We are unable to however show the graphical relationship because adding in OA would make the whole picture harder to understand

We recommend you refer to the above links to "Bonus 1% extra interest from CPF" posts for more in detail information!


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