Update: Special and MediSave Account Interest Rates for Q3 2023

The CPF board and Housing Board of Singapore have announced an upcoming change in the interest rates for MediSave and Special accounts in Q3 2023. Starting from July 1 to September 30, the interest rates will be increased from 4% to 4.01%. These changes are a direct result of the 12-month average yield increase of 10-year Singapore Government Securities, which determines the interest rates for the Special accounts.

This marks the first time the Singaporean government has altered the interest rates for special and MediSave accounts since 2008. However, the interest rates for Ordinary Account (OA) and Retirement accounts will remain unchanged at 2.5% and 4% respectively, on an annual basis.

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Below is the new CPF interest rates guide.

How Are the CPF Interest Rates Calculated?

We know you are wondering how are CPF interest rates calculated. Below is how the Central Provident Fund CPF interest rates are calculated; have a look;

CPF members grow their savings consistently because of the increased interest rates. Also, CPF members will start earning higher than the pegged or floor interest rate. 

Below is how they are calculated:

• CPF Ordinary Account Interest Rate

Your OA balance gives a legislated minimum interest of 2.5%p.a. Alternatively, it can be the three-month average local banks interest rates. It all depends on the higher one. And because the average bank’s interest rate is 0.06% for a 3-month average yield, meaning it’s lower than the 2.5 %per annum, you will get the 2.5% per annum Ordinary Account interest rate instead. The OA interest rate will remain unchanged this year.

• Special and MediSave Account Interest Rate

The SMA interest rate balances usually earn a 12-month average yield, majorly on 10-year special Singapore Government Securities (10YSGS) plus 1 %.

Alternatively, the current 4%p.a also serves that purpose. It all depends on the higher one. 

From July to 30 Sep 2023, the average yield of the 10YSGS is 4.01% p.a. This is above the current floor interest rate of 4.0%p.a. That’s why you will earn interest rate of 4.01% per annum as per Q3 2023. It is usually reviewed quarterly.

Additionally, savings credited in Retirement Account RA usually earn a weighted average interest rate of the invested portfolio. In contrast, every new saving directed towards RA every year specifically earns the 12-month average yield of 10YSGS plus 1, and it’s subject to 4% per annum. It is reviewed majorly annually.

Will the Interest Rates Rise Further?

You need to understand that the CPF interest rate usually increases based on the 12-month average yield of the 10YSGS plus 1%. So, for now, we can work with the 4.01%, which will commence from July 1 to September 30, 2023. 

It will assist CPF members in improving their savings. From there, the government will inform the CPF members if the interest rates increase further.

How Can I Maximize My CPF Money?

Here are several ways CPF members can maximize their CPF money. Take a look:

• Transfer the Money from Your Ordinary Account Into Your Special Account

Did you know one of the best ways to grow your Central Provident Fund CPF money is to transfer it to a CPF Special Account? Ordinary Account interest rate is 2.5 %, while SA earns a 4.0% interest rate. Moving the CPF contributions to your special account may add more money per year to your retirement fund.

You will get an additional amount for ten years rather than leaving it in an Ordinary Account. The process of moving your CPF savings from OA to SA is simple. 

However, it has some limitations. For example, if you are below 55, the money you can keep in your SA account is the full retirement sum of the year.

• Topping Up Extra Amounts

Another way to maximize your CPF savings is to consider cash top-ups toward your Central Provident Fund CPF. You can perform this by the Retirement Sum Topping Scheme (RSTU) or Voluntary Contributions. 

For RSTU, you may qualify for tax relief of approximately S$7,000 annually. Remember that if you are below 55, the maximum CPF contributions you can keep in your SA account should be the Full Retirement sum of S$186,000.

For people over 55 years, the maximum amount you can keep is the Enhanced Retirement Sum is S$279,000. It is also vital to understand that voluntary contributions are usually not tax deductible, especially if saving to your MA, OA, and SA. You can only incur charges if you contribute to your MA using cash.

• Defer Your Monthly Payouts

Another alternative is to defer your monthly payouts, especially if you do not need your amount promptly. Every year you defer your monthly payouts, your CPF LIFE monthly payouts in CPF accounts will improve by up to 7%. You may even skip your payments until you reach 70 years.

• Invest and Grow Your Assets

Investing and growing your retirement savings can be beneficial, especially under the CPF Investment Scheme (CPFIS). The scheme allows you to invest your Ordinary Account OA balances above the first $20,000 alongside SA balances above the first $40,000. You can invest in mutual funds, shares, bonds, investment-linked policies, gold, and annuities.

Remember, there are usually 10% and 35% on top of your investible savings, which you can use to invest in shares and gold, respectively.

• Pay for Education

Using a loan scheme, you can utilize your OA savings under the CPF education scheme to settle your spouse’s or children’s educational fees. The system only caters to full-time subsidized courses, majorly at Approved Education Institutions (AEIs). Remember, this applies to CPF members.

You will have to begin by repaying the mounted interest in cash and principal amount to your CPF accounts immediately one year after termination of studies or graduation.

• Move Your Combined CPF Balances to Your Loved one’s Retirement or Special account

Moving your CPF accounts balances to your loved one’s retirement account can be achieved through Retirement Sum Topping-up scheme. It allows you to transfer the Full Retirement Sum to your loved one’s retirement account. 

Remember, they should age below 55 years. You can also get the Enhanced Retirement Sum specifically for those above 55.

See also: Index Fund vs Mutual Fund and Cash vs CPF Home Loan

What Happens to OA and SA after 55 & 65?

At the age of 55, your Retirement Account (RA) is created. Your savings from your Special Account (SA) and Ordinary Account (OA) will be transferred to your RA, up to the Full Retirement Sum (FRS).

If you were born in 1958 or later, when you turn 65 and become eligible for payouts, there will be an additional transfer from your SA and OA to your RA if your RA savings are less than the FRS. This transfer will be up to the amount of the FRS for your cohort, allowing you to receive higher monthly CPF payouts.

For members turning 65 from 2023, this second transfer of OA and SA savings to RA will occur when you start your monthly payouts, rather than when you become eligible for payouts at 65. Therefore, if you choose to defer your payouts, the transfer will also be deferred until the start of your payouts.

Other Considerations for CPF Management

Another consideration for CPF management is that you can save for your children by topping their Special Account and maximizing their development account. It usually gives your child risk-free interest rates alongside the power of compounding interest as they grow up.

Another consideration is to pay your mortgage using cash rather than the CPF. The main benefit of doing that is that It makes your CPF monies compound faster, especially if you move them to SA.

Closing

There is going to be a change in special and MediSave account interest rates for Q3 2023. They will increase from 4% to 4.01% annually from July 1 to September 30. These changes result from increasing the 12-month average yield of 10-year Singapore Government Securities (10YSGS), where SMA’s interest rates are directed. To maximize your CPF money, you can Transfer the Money from Your Ordinary Account into Your Special Account, top up extra amounts, defer your monthly payouts, and pay for education.

Key Takeaways

• The interest rates for Special and MediSave accounts in Singapore will increase from 4% to 4.01% annually for Q3 2023.
• The rates for Ordinary Account (OA) and Retirement accounts will remain unchanged at 2.5% and 4% respectively, on an annual basis.
• Transfer funds from the Ordinary Account (OA) to the Special Account (SA) to take advantage of the higher interest rate.

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