-CHUA KHENG WEE- Part 1 on CPF OA interest rates – time for a | The Workers’ Party
-CHUA KHENG WEE-
Part 1 on CPF OA interest rates – time for an update?
For much of our working lives, the bulk of our CPF contributions gets allocated towards the Ordinary Account (OA). As funds in the OA are generally more liquid than the SA/MA accounts, as they can be used for housing for example, interest rates are lower at 2.5% today.
Our OA monies are nonetheless a critical component of our retirement savings, and more broadly, with inflation on the rise…maintaining the real value of our CPF savings is a significant concern.
It thus makes sense to ensure that interest rates can keep up with inflation over time – while CPF monies are invested in Special SGS which are fully guaranteed by the Government, the GIC portfolio has been able to beat inflation with nominal and real returns of 7.0% and 4.2% over the past 20 years respectively.
Besides, pegging OA interest rates to fixed deposit rates can also be tricky…as these are sometimes quite arbitrary. For example, a $19,999 deposit will yield a 1.15% interest while a $20,000 deposit, that which is used in OA calculations, will only yield 0.05%!
Stay tuned for part 2…
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