CPF Account Effective Interest Rates

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 increases.
However, the effective interest rates you are getting from CPF also decreases.

What is Effective Interest Rates?
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).

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) those age 55 & above will earn an extra 1% interest on the first $30,000

Below is how the interest curve will look like

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Before age 55

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.

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Recommended Read: What Happens After I Join A CPF LIFE Plan?

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After Age 55

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.

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CPF Ordinary Account Bonus Interest
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

So we included an image from CPF below to make it clearer 😉.

Source: CPF

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Recommended Read: Why You Should Hate Whole Life Insurance

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