Reason for Pegging Minimum Interest Rate of CPF Ordinary Account to Average of Local Banks' Rates

Mr Saktiandi Supaat asked the Minister for Manpower (a) what is the reason for pegging the minimum interest rate of the CPF Ordinary Account (OA) to the average of the three local banks' savings and fixed deposit rates over a three-month period; (b) whether the rationale remains compelling in the current interest rate environment and with the range of interest products available; and (c) whether there is a possibility of de-linking the concessionary HDB loan rate to the CPF OA interest rate.

As explained in my previous response to Parliamentary Questions filed by Mr Henry Kwek and Mr Louis Chua, Central Provident Fund (CPF) interest rates are pegged to returns on investments of comparable risk and duration in the market. As Ordinary Account (OA) savings can be withdrawn at any time for home purchases, servicing mortgage loans or other specified purposes, such as investment, the OA interest rate peg is pegged to the three-month average of the three local banks' savings deposit and 12-month fixed deposit interest rates, subject to the legislated minimum interest of 2.5% per annum. Other interest-bearing products, such as deposits with conditional interest rates, are not comparable to the OA as they are contingent on customers fulfilling other criteria, such as spending on credit cards or crediting of salary.

Over the past two decades of protracted low interest rate environment, the Government had continued to pay the 2.5% floor rate on OA monies. On top of that, the Government continues to pay 1% of extra interest on the first $60,000 of members' combined CPF balances, as well as an additional 1% extra interest on the first $30,000 of post-55 members' combined CPF balances. Beyond the interest paid on CPF, the Government also provides other support for Singaporeans to boost their retirement savings. This includes the Workfare Income Supplement (WIS) scheme where lower-wage workers receive a portion of the Workfare payments in their CPF, and the Matched Retirement Savings Scheme where eligible seniors receive matching CPF top-ups from the Government.

We are aware that the OA pegged rate has remained relatively stable amidst the current elevated interest rate environment. We are watching this closely to ensure that the CPF interest rate pegs remain relevant in the prevailing operating environment while taking into consideration the longer-term outlook. We will continue to review CPF interest rates periodically. As the HDB concessionary loan rate is pegged to the CPF OA interest rate, any changes to the OA interest rate need to be carefully considered, given the implications on the Housing & Development Board (HDB) borrowers.