On 29th May 2023, CPF Board announced that they will increase the interest rate on Special Account (SA) and Medisave Account (MA) to 4.01% for July-September 2023.
The CPF Ordinary Account (OA) and Retirement Account (RA) interest rates will remain at 2.5% and 4% respectively.
With interest increasing on things like mortgages and loans, fixed deposits and government securities, why is it CPF interest has barely changed?
We will explain it today in this article.
Recommended Read: Trevor Noah Explaining CPF
How is Ordinary Account (OA) Interest Calculated?
Every three months, CPF will look at the average 3-month interest rates provided by the main local banks.
If the 3-month bank rate is > 2.5%, the bank rate will be used as the interest rate for the next 3 months.
If the 3-month bank rate is < 2.5%, 2.5% will be used as the interest rate for the next 3 months.
Recommended Read: Why You Should Max Your CPF Retirement Sum Early
What is the Average 3-Month Bank Rate?
The average 3-month bank rate for the period February-April 2023 is 0.66%.
Because it is lower than 2.5%, hence 2.5% is given to all CPF OA balances.
Recommended Read: Simplifying UOB's 7.8% Interest Rate
I Thought Banks are Giving Up To 7.5% Interest?
CPF uses the various banks' 3-month fixed deposit rates to determine the CPF OA rates.
The 7.5% rate given by the banks are "promotional" rate given on the respective banks' savings accounts.
The CPF OA uses the fixed deposit rate instead of the savings account rate, so even if the interest rates on savings accounts are higher, it will not affect the CPF OA interest rates.
Conclusion
Although the CPF OA interest rate is not increasing in the latest round of interest rate review, 2.5% is still a pretty good interest rate for an account that provides the flexibility of funding a home purchase, education, or investment.
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