CPF Interest

We all know that we earn 2.5% interest for our CPF ordinary account and 4% for the special and medisave accounts.

While flipping through the MAS Annual Report 2006/2007, I noted that in 2006, the interest credited to CPF members' balances is a total of $3,926.8 million (yes, that's close to $4 billion). This figure is also available from the CPF Annual Report.

Let's assume that the interest is calculated purely based on the previous year's balances (i.e. 2005), which is $111,873.8 million (yes, this is almost $112 billion). This means CPF paid out an effective interest rate of 3.28%.

In fact, for the 5 consecutive years from 2002 to 2006 inclusive, I calculated that the average effective interest rate is 3.24%.

This is a nice number! It's very close to 3.25%, which is the average of 2.5% and 4% - the interest rates of ordinary and special/medisave.

Does this mean that the average CPF member has almost an equal balance amount in his ordinary account as there is in his special & medisave accounts combined?

Nonetheless, you might be interested in calculating the effective interest rate you will get from CPF. Just enter your ordinary, special and medisave balances here:



http://www.salary.sg/2007/cpf-interest/

Interesting analysis of the figures. Although the CPF balance is largely tipped towards the Ordinary A/C as opposed to the Special/Medisave A/Cs in terms of proportion, it would be pertinent to note that the monies in the Ordinary A/C would often be invested in property and thus have a low balance frequently on average. On the other hand, the Medisave and Special A/Cs would normally have the balance 'untouched' for much of the duration in the A/C holder's life and thus generate a higher capital volume for interest to be earned.