This attention-grabbing headline appeared on Channel News Asia mimicked what we saw a few months ago.
Taking a closer look, the article stated that the interest rate for the CPF Special (CPF-SA) and MediSave Account (CPF-MA) will increase to 4.04% per annum in Q4 of this year, up for only the second time since the floor rate of 4% was established in 2008.
I suppose it was educational to be reminded that the CPF-SA and CPF-MA interest rate is pegged to the 12-month average yield of 10-year Singapore Government Securities (10YSGS), which has consistently been below 4% for the longest time.
Background Information on Special, MediSave and Retirement Account (SMRA) Rate Floor
Sourced from the CPF website, we can trace this all the way back to 1 January 2008 whereby savings in the SMRA have been invested in Special Singapore Government Securities (SSGS) which earn an interest rate pegged to the 12-month average yield of 10YSGS plus 1%.
This is a market-based rate for instruments of comparable risk and duration and will ensure that members receive fair and reasonable interest rates.
To help members cope with the transition, the Government had committed to providing a 4% rate floor for SMRA interest which was subsequently extended in view of the global economic conditions and the fact that interest rates had been exceptionally low, till today that is.
- 2008: 4% floor rate established
- 2008 to 2023: 12-month average yield of 10YSGS plus 1% constantly below 4%
- Q3 2023: Interest rate finally increases to 4.01%
- Q4 2023: Interest rate increases to 4.04%
What This Means i.e. Nothing Much
I am sure they don’t really want to push out this article with such a minuscule increase but the fact is that regardless of whether it is a 0.04% increase or a more substantial one, a change is a change.
This would imply that the current 12-month average yield of 10-year Singapore Government Securities is now 3.04%.
If the 12-month average yield of 10-year Singapore Government Securities continues to inch upward, then we’ll likely be able to see a more meaningful increase in the interest rate for our CPF Special (CPF-SA) and MediSave Account (CPF-MA) in future.
As usual, the official statement states that “the government is watching the interest rate environment closely to ensure that the CPF interest rate pegs remain relevant in the prevailing operating environment while taking into consideration the longer-term outlook” which is exactly what they said in the previous round.
For most of us, we can pretty much ignore this change for now and get on with our lives.
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Kevin started Turtle Investor when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for his daily expenses and vacations. You can learn more about Kevin here.