Breaking news!

Since Jan 1, 2008, the Government had committed to providing a 4 per cent interest floor rate for Special, Medisave, and Retirement Account (SMRA) CPF monies for two-year periods each time.

And they’ve been extending it ever since due to global economic conditions.

As well as the fact that interest rates have been exceptionally low.

The current rate floor was due to expire on Dec 31, 2020.

But since our economy is so cui now…

CPF has announced that the 4 per cent interest rate floor for SMRA has been extended until Dec 31, 2021 .

“Why not 2 more years like always,” you ask?

I’m guessing the Government isn’t too optimistic about the global pandemic situation and wants to adopt a see-how approach.

Now, I know what you’re thinking…

No.

Here’s why this announcement — following CPF’s quarterly interest rate review — is important.

CPF Interest Rates from Oct 1 to Dec 31, 2020

There are no changes to the current CPF interest rates.

	Ordinary Account	Special and MediSave Accounts	Retirement Account
Interest rate floor	2.5 per cent	4 per cent	4 per cent

Interest rate for CPF Ordinary Account and HDB Mortgage Rate from Oct 1 to Dec 31, 2020

The OA interest rate will be maintained at 2.5 per cent per annum.

For home-owners, take note that the Concessionary Interest Rate for HDB Mortgage Loan, which is pegged at 0.1 per cent above the OA interest.

Remains unchanged at 2.6 per cent per annum.

Interest Rate for Special and MediSave Accounts from Oct 1to  Dec 31, 2020

The SMA interest rate will be maintained at 4 per cent per annum.

This will be further extended until Dec 31, 2021.

Interest rate for Retirement Account from Oct 1 to Dec 31, 2020

The RA interest rate will be maintained at 4 per cent per annum.

This will be further extended until Dec 31, 2021.

TL;DR: How are the CPF interest rates calculated?

If you’re wondering how the people at Central Provident Fund (CPF) decide on the interest rates…

No, they don’t just pluck a number from the sky.

And no… they don’t throw darts at a piece of paper to randomly choose a number either.

There’s a science to it.

CPF Account	Current Interest Rate (per cent per annum)	Reviewed?	Type of Interest Rate	Interest Rate determined by	Interest Rate (per cent per annum)
Ordinary Account	2.50	Quarterly	Floor	Legislated minimum	2.50
Market	3-month average banks' interest rate	0.57
Special Account	4.00	Quarterly	Floor	Current interest rate floor	4.00
Market	12-month average yield of 10YSGS + 1 per cent	1.43
Medisave Account	4.00	Quarterly	Floor	Current interest rate floor	4.00
Market	12-month average yield of 10YSGS + 1 per cent	1.43
Retirement Account	4.00	Yearly	Floor	Current interest rate floor	4.00
Market	Weighted average interest of SSGS	3.05

Ordinary Account (OA) interest rate

Your OA balances earn a legislated minimum interest of 2.5 per cent per annum.

Or the 3-month average of major local banks’ interest rates.

		12-Month Deposit Rate (% per annum)			Savings Rate (% per annum)		Average (% per annum)
Bank	DBS Balances of $20,000 to < $50,000	OCBC Balances > $20,000 to $50,000	UOB Balances < $50,000	DBS Balances > $10,000 to $100,000 (AUTO-SAVE Account)	OCBC Balances ≤ $100,000 (EASI-SAVE Account)	UOB Balances > $15,000 to $100,000 (UNIPLUS Account)	Using the 80FD:20SD formula
May 31,  2020	1.1500	0.2500	0.7000	0.0500	0.0500	0.0500	0.5700
June 31, 2020							0.5700
July 31, 2020							0.5700

Whichever is higher.

Average banks' interest rate (May to Jul 2020)	0.57 per cent
CPF OA interest rate (Oct to Dec 2020)	2.50 per cent (legislated minimum)
Fee to cover cost of loan administration	0.10 per cent
HDB mortgage rate (Oct to Dec 2020)	2.60 per cent

Since the most recent 3-month average yields an interest rate of 0.57 per cent per annum.

Which is lower than the legislated minimum of 2.5 per cent per annum.

We’ll all receive the 2.5 per cent per annum instead.

This is reviewed quarterly .

Special and MediSave Account (SA and MA) interest rate

Your SA and MA balances earn the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1 per cent.

Or the current rate floor of 4 per cent, whichever is the higher.

Average yield of 10YSGS (Aug 2019 to Jul 2020)	1.43 per cent
Plus 1 per cent	1.00 per cent
CPF SMA interest rate (Oct to Dec 2020)	2.43 per cent
CPF SMA interest rate floor (Oct to Dec 2020)	4.00 per cent (current rate floor)

Since 1.43 per cent + 1.00per cent = 2.43 per cent, which is lower than the current floor interest rate of 4 per cent.

We’ll receive 4 per cent per annum instead.

This is also reviewed quarterly .

Retirement Account (RA) interest rate

Your new RA monies credited in 2020 are invested in Special Singapore Government Securities (SSGS) which earns a fixed coupon equal to either the 12-month average yield of 10YSGS plus 1 per cent computed for the year.

Or the current rate floor of 4 per cent, whichever is the higher.

Since the average yield of the 10YSGS plus 1 per cent from Nov 2018 to Oct 2019 is 3.05 per cent per annum .

The new SSGS issued in 2020 will pay a fixed coupon of 4 per cent instead.

The interest credited to the RA is based on the weighted average interest rate of your entire portfolio of these SSGS, and adjusted annually in Jaunary to take into account the coupon rates payable by the new SSGS issued.

Oh, and unlike the OA and SMA interest rates, this is reviewed annually .

What about additional CPF interest?

The CPF is a social security system that helps Singaporeans set aside savings for retirement .

So if you put money into it for your future, you best believe that the Government is going to want to help you attain your retirement faster.

“How do they do that,” you ask?

By giving you additional CPF interest depending on your age!

Additional CPF interest for CPF members below 55

If you are below 55 years old, you will be paid an extra 1 per cent on the first $60,000 of your combined balances — with up to $20,000 from your Ordinary Account.

This means that you will earn 3.5 per cent a year on your Ordinary Account monies.

And up to 5 per cent on your Special and Medisave Account monies in the last quarter of 2020.

Additional CPF interest For CPF members above 55

If you are above 55 years old, you will earn an extra 2 per cent on the first $30,000 of your combined balances — with up to $20,000 from your Ordinary Account.

And an extra 1 per cent on the next $30,000.

That works out to be up to 6 per cent interest per year on your retirement balances.

The extra interest earned on your Ordinary Account will go into your Special or Retirement Account.

If you’re above 55 and are also participating in the CPF LIFE scheme.

The extra interest will still be earned on your combined balances, which includes the savings used for CPF LIFE.

This article was first published in Seedly.