Many friends have been
asking me if it's still worth it to top up their CPF now considering that the
interest rate is expected to rise for the rest of the year.
To answer this question,
we need to know how is CPF interest rate being determined. The CPF interest
rate has remained at 2.5% for Original Account and 4% for Special Account for
the longest time that most of us have forgotten that the CPF interest rate is
actually not fixed at those percentage.
For the OA, the interest
rate is computed based on the 3-month average of major local banks' interest
rates (subject to the legislated minimum interest of 2.5% per annum). This is
being reviewed quarterly. At the last review, that rate is 0.09% for the period
from February 2022 to April 2022 and hence the OA interest rate stayed at 2.5%.
For the SA, the interest
rate is computed based on the 12-month average yield of 10-year Singapore
Government Securities (10YSGS) plus 1% (subject to the current floor interest
rate of 4% per annum). This is also being reviewed quarterly. At the last
review, the rate is 2.72% for the period from May 2021 to April 2022 and hence
the SA interest rate stayed at 4%.
Currently, the interest
rate for the major local bank is still less than 1% and it might take a while
for the rate to be more than 2.5%. On top of that, there are other alternate
savings options like the Singapore Savings Bond (SSB) which is at 2.71% for 10 years.
Hence for now, it might not be a good option to put money in OA via housing
loan refund. It might be better to have your money in SSB which offers better
liquidity.
As for the 10 years Singapore
Government Securities rate, it is currently at around 3.11% and there is a high
chance that the 12 month average yield will go past 3% at the next quarterly
review. Barring any changes to CPF rules, the interest rate in SA may go past
4% in the near future. Hence, I feel that it is still worthwhile to continue to
do Retirement Sum Top Up (RSTU) into your SA for the $8000 tax relief as well
as getting a relatively risk free return of 4% (potentially more in the near
future).
Thanks for reading and do support me on my referral page. Stay Safe and Happy CPFing!
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