Unerstanding your CPF interest rates and how to use them correctly

CPF is essentially a form of social security system in Singapore that can be used for our housing, medical expenses as well as retirement needs. Surprisingly many Singaporeans are unaware of CPF interest rates and other related policies that may affect them.

We shall get a better understanding of our CPF Ordinary Account and Special Account together with the CPF interest rates that will affect them.

CPF INTEREST RATES IN ORDINARY ACCOUNT AND SPECIAL ACCOUNT

Before jumping into the CPF interest rates, we must first know what are the types of accounts we have in our CPF account. Our CPF account for members below the age of 55 years old is made up of:

  • Ordinary Account
  • Special Account
  • Medisave Account

For example, John has $90,000 in his Ordinary Account and $60,000 in Special Account. His CPF interest payout is computed as follows:

Example on how the additional 1% is allocated in your CPF OA and SA.

In the above example, the additional CPF interest rate of 1% in Ordinary Account is capped at the first $20,000. The balance of the $70,000 in the Ordinary Account will attract the standard 2.5%.

The balance of $40,000 in the Special Account after deducting the first $20,000 in Ordinary Account will attract a total of 5%. Remember that this extra 1% is only payable to the first $60,000 across your CPF Accounts.

WHAT IMPACT DOES IT HAVE ON ME?

When utilising CPF funds for the downpayment of the property purchase, we recommend not emptying your CPF Ordinary Account. The reason is simple, as long as your mortgage interest rates are lower than CPF interest rates, it is wiser to keep your monies in your CPF as it grows faster than the interests you pay for your mortgage.

Utilising all your CPF to take lesser mortgage loan is similar to bleeding money yearly. For example, you borrow money from CPF at 2.5% interest rate to invest it in an investment that generates 1.5%. You will be losing 1% per year.

As long as the asset does not grow faster than your CPF accrued interest, your CPF is not optimised.

Common reply I get when discussing about CPF.

CPF IS MY MONEY

I do hear this a lot when touching on the topic of CPF. That is very true.

Would you like to have $300,000 or $250,000 in your CPF when you retire? I’m sure you would choose $300,000.

Remember CPF is indeed your money and it is important to maximise the use of CPF so that you have sufficient funds for your retirement. Using it correctly is one way of protecting your retirement funds.

To find out more you may visit CPF Website or call CPF hotline at 1800-227-1188

I have helped many of my clients grow their assets and CPF at the same time with the right strategies.

You may speak to your trusted agent who is fluent with CPF interest and policies on how to best optimise your position.

Leave a Comment