How to get higher returns on CPF savings as OA rate stays the same

T-bills and Singapore government bonds pay higher interest than the OA’s 2.5% rate

- Chor Khieng Yuit

The interest rate payable on the Ordinary Account (OA) in the Central Provident Fund will remain at 2.5 per cent in January, although the rate for the Retirement Account (RA) will rise for the first time since 2008.

The RA rate will go up from 4 per cent to 4.08 per cent in January.

The calls are getting louder for the OA rate to rise as well, with renewed discussion on whether it is time to review the formula for calculating this rate.

At the same time, the range of investment options is wider, so CPF members can invest their OA savings in other instruments to earn higher returns.

The CPF Act states that the interest payable on all savings cannot go below 2.5 per cent, which is known as the floor rate.

Funds in the OA are subject to this 2.5 per cent floor rate.

The OA rate has never gone above this level in the past two decades, although the first $20,000 of OA balances for CPF members under 35 earn one percentage point more, or 3.5 per cent.

This formula for computing the OA rate was derived in 1999 using the local banks' savings and fixed deposit rates over a three-month period.

Associate Professor Chia Ngee Choon from the National University of Singapore's Department of Economics noted that the bond market here has grown and the outstanding amount of government securities now exceeds $228 billion, a more than sixfold jump from $35 billion in 1999.