CENTRAL Provident Fund members will continue to receive 2.5 per cent a year interest on savings in their Ordinary Account for the first three months of next year.

The CPF board said yesterday the interest rate as derived from those of the major local banks from August to October this year worked out to 0.42 per cent a year. But interest of 2.5 per cent will be paid, as this is the minimum rate provided for under the CPF Act.

With the Housing & Development Board, the CPF Board also said the concessionary interest rate for HDB mortgage loans will remain at 2.6 per cent a year from January to March next year.

For the Medisave, Special and Retirement accounts, the interest rate will be announced in December, after the 12-month average yield of the 10-year Singapore Government Security has been computed.

The CPF interest rate for the Special, Medisave and Retirement Accounts is pegged at one per cent above the yield rate. The current rate of 4 per cent for the October-December period will be kept as the floor until Dec 31 next year, to ‘help members adjust to this floating rate’. In addition, an extra one per cent interest will be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account.

Source: Business Times, 17 Nov 2009

Where do you see this?

In newspaper articles and on the website of the Central Provident Fund (CPF).

What does it mean?

The CPF Minimum Sum (MS) is the amount you have to set aside, in your Retirement Account (RA), for retirement needs. It need not be all in cash. Up to 50 per cent of this sum can be a property pledge.

Your RA is set up when you reach 55 and it comprises savings from your Ordinary and Special accounts.

Why is it important?

People are living longer and so need enough savings to see them through a longer retirement period.

The CPF Minimum Sum Scheme provides members with monthly payouts to support a modest standard of living in their old age.

Currently, older CPF members may participate in the CPF Life annuity scheme or buy approved life annuities with their MS to give them a guaranteed life income.

Alternatively, they may place their savings with approved banks or continue to keep the money with the CPF Board.

The MS left with the Board earns a 4 per cent annual interest rate till December next year.

The sum was set at $80,000 in 2003 and will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013.

These amounts will be adjusted yearly for inflation. The prevailing MS is $117,000.

So you want to use the term. Just say…

‘My financial adviser says I should top up my CPF Minimum Sum if I have a shortfall.’

Source: Sunday Times, 13 Sep 09