Understanding CPF Interest Rates: CPF OA, SA, MA, and RA Rates 2024

The Central Provident Fund (CPF) is an essential pillar in Singapore's social security system, designed to provide Singaporeans and Permanent Residents with a comprehensive savings plan for their retirement. Beyond retirement, the CPF framework extends its benefits to healthcare and housing, ensuring a well-rounded financial safety net. This all-encompassing guide delves into the intricacies of CPF interest rates, shedding light on how they are meticulously calculated to bolster your financial planning efforts. 

As we embark on the second quarter of 2024, from 1 April to 30 June, the financial landscape sees a subtle yet significant adjustment in the interest rates applied to the Special Accounts (SA) and Retirement Accounts (RA), collectively known as the Special MediSave and Retirement Account (SMRA). A new rate of 4.05% per annum (p.a.) will be applied to savings in the SMRA, marking a slight decline from the previous quarter's rate of 4.08% p.a. This change stems from the recent dip in the 12-month average yield of the 10-year Singapore Government Securities (10YSGS) plus 1%, which is the benchmark for the SMRA interest rate. Despite this adjustment, the floor rate for the SA and RA will remain unchanged at 4.0% p.a. until 31 December 2024, following the announcement on 21 September 2023. 

On the other hand, the interest rate for the Ordinary Account (OA) will continue to be maintained at 2.5% p.a. for the same period. This stability is ensured as the OA rate is pegged at the floor rate of 2.5% p.a., reflecting the government's commitment to safeguarding the interests of CPF members against the backdrop of economic fluctuations. Through this guide, we aim to clarify the current state of CPF interest rates and the underlying factors that influence these rates, empowering you to make informed decisions regarding your CPF savings.

Understanding the different CPF accounts 

As you start working and make contributions to the Central Provident Fund (CPF), your savings are meticulously allocated into three specialised accounts: Ordinary Account (OA), MediSave Account (MA), and Special Account (SA). 

Additionally, upon reaching the age of 55, a fourth account — Retirement Account (RA) is established to further bolster your financial security in your golden years. Each of these accounts serves a distinct purpose, from financing your dream home to ensuring you have adequate healthcare coverage and a stable retirement income. Here's a succinct overview of what each account offers:

• Ordinary Account (OA): A versatile account that supports retirement, housing, insurance, and investment needs. It's your go-to for home loans, education financing, and investment opportunities.
• Special Account (SA): Focused on long-term savings for retirement, the SA offers higher interest rates to grow your retirement fund. Investments are primarily in retirement-related financial products.
• MediSave Account (MA): Dedicated to healthcare expenses, the MA covers hospitalization, approved medical insurance, and other approved medical expenses, ensuring you and your family's health are well taken care of.
• Retirement Account (RA): Created when you turn 55, the RA is designed to provide you with monthly retirement payouts, transforming your CPF savings into a steady income stream during retirement.

CPF Interest Rates 2024

Changes in SMRA Rates: The collective interest rate for Special, MediSave, and Retirement Accounts (SMRA) experiences a minor decrease from 4.08% to 4.05% per annum. This adjustment reflects changes in the yields of Singapore Government Securities, impacting the growth of retirement, healthcare, and long-term savings.

Ordinary Account (OA) Remains Unchanged: Maintaining its stability at 2.5% per annum, the OA interest rate underscores CPF's commitment to providing a predictable savings environment. This consistency is crucial for members planning their finances, particularly for housing and education

Understanding the Calculation of CPF Interest Rates

CPF employs a thoughtful approach to calculating interest rates to ensure members' savings grow steadily over time. This system is designed to be both fair and adaptable, reflecting current economic conditions while providing a stable and competitive return on savings.

CPF interest rates are calculated based on the higher of two figures: the legislated floor rate or a pegged rate linked to market instruments. This design ensures that regardless of market volatility, CPF members receive a minimum guaranteed interest rate, while also allowing for the possibility of higher returns based on economic performance.

• Floor Rate: The floor rate is a safety net, guaranteeing a minimum interest rate regardless of external market conditions. It provides stability and predictability for CPF members' savings growth.
• Pegged Rate: The pegged rate is linked to specific financial instruments or market indices, making CPF returns responsive to economic conditions. This means if the market performs well, CPF members can benefit from higher interest rates, up to a certain cap.

Ordinary Account (OA) Interest Calculation

The OA interest is the higher of the legislated minimum of 2.5% p.a. floor rate that is higher than the average of major local banks' interest rates over three months which was 0.66% for the period from Nov 2023 to Jan 2024. 

Special, Medisave, and Retirement Accounts (SMRA) Calculation

Since the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1% is higher than the 4.0% floor rate, hence the rates were set at 4.05%. RA has recently adjusted to be reviewed quarterly, same as SA and MA.

Quarterly Reviews and Adjustments

The CPF Board conducts quarterly reviews of interest rates to ensure they align with current market conditions and remain competitive. This consistent reevaluation is crucial for adapting to economic fluctuations, safeguarding the value of CPF members' savings against inflation, and maximizing growth potential. 

Through these reviews, CPF can adjust interest rates to reflect economic realities, balancing the need for stability with the opportunity for increased returns. This process ensures that members' savings continue to grow effectively, securing financial well-being for their retirement years.

CPF Ordinary Account (OA) Interest Rate: 2.5% (Q2 2024)

For the period spanning 1 April 2024 to 30 June 2024, the interest rate for CPF Ordinary Account (OA) savings has been maintained at 2.5% per annum. 

This decision stems from a structured calculation methodology, where the applicable interest rate is determined by comparing the legislated minimum rate, set at 2.5% per annum, against the three-month average interest rates (Nov 2023 - Jan 2024)offered by major local banks of 0.6633%. 

Given that the floor rate of 2.5% exceeds the pegged rate derived from bank averages, CPF members will continue to earn a 2.5% interest rate on their OA savings for this quarter. 

CPF Special Account (SA) and MediSave Account (MA) Interest Rate: 4.05% (Q2 2024)

From 1 April to 30 June, the interest rates for the CPF Special Account (SA) and MediSave Account (MA) have been adjusted to 4.05% per annum. 

This adjustment is based on a comparison between the current floor rate of 4% per annum and the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, which for the period from February 2023 to January 2024, equaled 4.05%. 

Notably, this adjustment period marks a rare occurrence since 1999, with the interest rates for both SA and MA surpassing the 4.0% mark. 

CPF Retirement Account (RA) Interest Rate: 4.05% (Q2 2024)

From 1 April to 30 June, the CPF Retirement Account (RA) will see its interest rate set at 4.05% per annum. 

This adjustment aligns the RA's interest rate with those of the Special Account (SA) and MediSave Account (MA), reflecting a strategic shift to quarterly computations. This change is aimed at making the RA's interest rate more dynamically responsive to the current interest rate environment. 

Consequently, during this period, savings within the RA will accrue interest at a rate of 4.05%, identical to the SA and MA rates, ensuring a unified approach towards interest accrual across these CPF accounts. This harmonization underscores CPF's commitment to optimizing returns for its members across all stages of their savings journey, particularly as they approach or enter retirement.

Maximise CPF Earnings: Additional CPF Interest Rates and Extra Contributions

Starting from 1st January 2024, there will be an increase in the CPF contribution rates for senior workers between the ages of 55 and 70. This change is part of Phase 3 of the increase plan, aiming to improve retirement adequacy for senior workers. The adjustments are in line with Singapore's long-term objective and will only affect Singaporean Citizens and Permanent Residents (PR) who have held permanent residency for 3 years or more. First and second-year PRs won't be affected unless they opt for the higher rates voluntarily. 

The CPF monthly salary ceiling is also set to increase from $6,300 to $6,800 starting 1st January 2024. This adjustment means that if you earn at least $6,800 a month, there will be a slight decrease in your take-home pay but an increase in your CPF contributions. This change is part of a plan to gradually raise the ceiling to $8,000 by 2026, allowing time for both employers and employees to adjust.

CPF also offers additional interest rates to further bolster members' savings, especially for retirement.

• Extra Interest for Members Below 55: An additional 1% per annum is applied to the first $60,000 of a member's combined CPF balances, with a cap of $20,000 from the OA. Meaning, you will earn 
• Enhanced Rates for Members Above 55: Members in this age group receive an extra 2% per annum on the first $30,000 of combined balances and an extra 1% per annum on the next $30,000, subject to conditions.

Other Ways to Secure Your Retirement: SRS x Stashaway

In Singapore, preparing for retirement involves more than just relying on the Central Provident Fund (CPF); the Supplementary Retirement Scheme (SRS) plays a vital role too. While both are integral to securing your financial future, they serve different purposes and offer distinct benefits.

CPF vs. SRS: Complementary Tools for Retirement

• CPF: It's mandatory for all working Singaporeans and PRs, offering a high degree of security with guaranteed returns. CPF contributions are used for retirement savings, housing, and healthcare.
• SRS: This is a voluntary scheme aimed at supplementing CPF savings. Contributions to SRS are eligible for tax deductions, reducing your taxable income. Unlike CPF, the SRS offers flexibility in the choice of investment and timing of withdrawals, which can be strategically planned for lower tax liabilities post-retirement.

Investing SRS Funds with StashAway

StashAway provides an ideal platform to grow your SRS funds through smart and adaptive investments:

1. Customised Portfolio Options: Depending on your risk appetite and retirement goals, StashAway can tailor investment portfolios that range from conservative to growth-oriented, maximizing your potential returns.
2. Regulated by MAS: As a platform regulated by the Monetary Authority of Singapore, StashAway adheres to high standards of security and compliance, ensuring your investments are safe and well-managed.
3. Low Fees, High Transparency: StashAway charges lower management fees compared to traditional investment services, with no hidden costs—ensuring your savings work harder for you.
4. Tax Efficiency: Investing through SRS not only grows your wealth but also optimises tax benefits. Only 50% of withdrawals from SRS are taxable at retirement, and if planned wisely, these withdrawals can be taxed at a lower rate amidst lower income during retirement years.