betty August 2, 2022

SINGAPORE – There is no change to the interest rates being paid out to Central Provident Fund (CPF) members, given that the current bank interest rates continue to be below the effective CPF floor rates, said Manpower Minister Tan See Leng in Parliament on Tuesday (Aug 2).

Responding to MPs’ queries on whether CPF will increase its interest rate for the next few years to compensate for the high inflation rate environment, Dr Tan noted that the three-month average interest rate of three major local banks continues to be at around 0.09 per cent according to CPF’s latest estimates, which is below the CPF Ordinary Accounts’ (OA) interest rate of 2.5 per cent.

Meanwhile, the interest rate for the Special, MediSave and Retirement Accounts (SMRA) is pegged to the 12-month average yield of 10-year Singapore Government Securities plus 1 per cent. The peg was 2.72 per cent in May and around 3 per cent based on latest estimates, he said.

“As these are below the effective floor rates for these accounts, the interest rates for the OA and SMRA are maintained at 2.5 per cent and 4 per cent respectively,” said Dr Tan.

He was responding to queries on CPF interest rates posed by MPs Henry Kwek (Kebun Baru) and Louis Chua (Sengkang GRC).

Asked how CPF computes its interest rates, Dr Tan said the rates are pegged to returns on investments of comparable risk and duration in the market.

For instance, members’ OA savings are in a liquid account that can be withdrawn at any time for home purchases, servicing mortgage loans and investments.

“The OA interest rate is pegged to the three-month average fixed deposit and savings rates of our three major local banks which are DBS, UOB and OCBC,” he said.

“These three banks have a larger share of domestic deposits than other banks.”

For SMRA accounts, Dr Tan said the Government has maintained a floor rate of 4 per cent since 2008.

“Despite the low interest rate environment since the global financial crisis, the Government has continued to pay generous interest rates due to the floor rates,” Dr Tan said.

“If the pegged rates exceed the floor rates, members will correspondingly earn the higher interest rates on their CPF savings.”

CPF will continue to periodically review its interest rates, he added. In September, the CPF Board will announce the interest rates effective for the last three months of this year.

There is some time lag in CPF interest rate adjustments to avoid subjecting people to unnecessary fluctuations. Those with HDB concessionary loans who pay the prevailing OA interest rate plus 0.1 percentage point also benefit from the stability compared with market mortgage rates, he said.