Friday, July 14, 2006

Review CPF Interest Rates Formula

CPF members receive a market-related interest rate (based on the 12-month fixed deposit and month-end savings rates of the major local banks) on their CPF savings and this rate is reviewed quarterly. However, even when major local banks required money, they tend to offer "promotional rates" instead of upping the normal fixed deposit rates and even then, offer "promotional rates" to deposits of larger amounts.

Most CPF members have larger sums of money tied in their CPF accounts and will be eligible for the major local banks' "promotional rates" if they had it in cash. If CPF took the large amount of cash that is under its charge and deposit it with the banks at the "promotional rates", it can easily obtain risk free returns of at least 3%, higher than the 2.5% being given for CPF Ordinary Account now.

It is perhaps time for CPF to review the interest rate formula and tie it to something more up-to-date and relevant such as the banks' 6 or 12 mths "promotional rates" which will not unnecessarily penalise CPF which reviews the rates every 3 months. CPF members should not be denied their square deals and get poorer returns from CPF OA, a very long term deposit, than from short term fixed deposits from major local banks.

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