Should we still top up our CPF in an increasing interest rate environment?

Many friends have been asking me if it's still worth it to top up their CPF now considering that the interest rate is expected to rise for the rest of the year.

To answer this question, we need to know how is CPF interest rate being determined. The CPF interest rate has remained at 2.5% for Original Account and 4% for Special Account for the longest time that most of us have forgotten that the CPF interest rate is actually not fixed at those percentage.

For the OA, the interest rate is computed based on the 3-month average of major local banks' interest rates (subject to the legislated minimum interest of 2.5% per annum). This is being reviewed quarterly. At the last review, that rate is 0.09% for the period from February 2022 to April 2022 and hence the OA interest rate stayed at 2.5%.

For the SA, the interest rate is computed based on the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1% (subject to the current floor interest rate of 4% per annum). This is also being reviewed quarterly. At the last review, the rate is 2.72% for the period from May 2021 to April 2022 and hence the SA interest rate stayed at 4%.

Currently, the interest rate for the major local bank is still less than 1% and it might take a while for the rate to be more than 2.5%. On top of that, there are other alternate savings options like the Singapore Savings Bond (SSB) which is at 2.71% for 10 years. Hence for now, it might not be a good option to put money in OA via housing loan refund. It might be better to have your money in SSB which offers better liquidity.

As for the 10 years Singapore Government Securities rate, it is currently at around 3.11% and there is a high chance that the 12 month average yield will go past 3% at the next quarterly review. Barring any changes to CPF rules, the interest rate in SA may go past 4% in the near future. Hence, I feel that it is still worthwhile to continue to do Retirement Sum Top Up (RSTU) into your SA for the $8000 tax relief as well as getting a relatively risk free return of 4% (potentially more in the near future).

Thanks for reading and do support me on my referral page. Stay Safe and Happy CPFing!