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Ordinary Account returns have been boosted by 2.5% minimum interest and extra interest over the last two decades

We refer to Mr Goh Geok Huat’s letter, “Three ways to make saving in Ordinary Account more appealing” (22 Dec).

CPF interest rates are pegged to returns on investments of comparable risk and duration in the market.  As Ordinary Account (OA) savings can be withdrawn at any time for home purchases or other specified purposes such as investment, the OA interest rate is pegged to the three-month average of the three local banks’ savings deposit and 12-month fixed deposit interest rates. However, the CPF has two important features which do not apply to bank deposits. Firstly, over the past two decades of protracted low interest rate environment, the Government has continued to pay the 2.5% minimum interest on OA monies. Secondly, the Government continues to pay 1% of extra interest on the first $60,000 of combined CPF balances for all members, as well as an additional 1% extra interest on the first $30,000 of combined CPF balances for members aged 55 and above.

The CPF Board’s practice of computing CPF interest on a monthly basis and crediting interest earned yearly should be seen in the context of these other features. While changing the computation method and crediting frequency can translate into marginally higher CPF interest payments, the aforementioned measures provide CPF members with much higher interest and a greater boost to their CPF savings. 

The Government will continue to review the CPF interest rates periodically to ensure their relevance in the prevailing operating environment.

Fereen Liew (Dr)

Divisional Director

Income Security Policy Division

Ministry of Manpower

Three ways to make saving in Ordinary Account more appealing

I refer to the report “How to get higher returns on CPF savings as OA rate stays the same” (Dec 20). I have three suggestions on how the Central Provident Fund (CPF) Ordinary Account (OA) can be made more appealing to grow your savings.

  • First, as interest rates stay higher for longer, the CPF Board should adjust the OA rate higher to be more competitive and in line with the high inflation rate.
  • Second, the board should calculate interest based on the daily average balance in OA instead of the lowest monthly balance. This is fair as the fund is already deposited into members’ OA.
  • Third, interest earned should be credited to the OA at the end of each month. This is in line with what is being practised by banks for customers with savings accounts.

If the three suggestions are implemented, more members would be happy to leave their funds in the OA.

Goh Geok Huat