Dear readers, today it was announced that the CPF Special Account Interest Rate will increase to 4.01% per annum for 1 Jul 23 to 30 Sep 23 and this is an increase from the current rate of 4% per annum. Is this increase in the CPF rate attractive?
When I learnt of the news, while I was happy to note that the government is reviewing the Special Account Interest Rate, especially given the current high inflation environment, I felt that the 0.1% per annum increase was not a lot.
To give an illustration, let say we put an amount of $1,000 in the CPF Special Account and let the magic of compound interest of the current rate of 4% works its magic and provided no withdrawals of the capital, at the end of 20 years, this $1,000 capital will grow to $2,106.85.
With the new interest rate of 4.01% per annum with effect from Jul 23, after 20 years, this capital of $1,000 will grow to $2,110.70, an increase of $3.85 after 20 years, hence from this point of angle, the slight increase of 0.1% per annum may not be attractive. Of course, this simple example did not take into account that every year, there is likely a sum of Medisave monies credited into the CPF Special Account.
On the converse, if the 4% interest is increased to 5% per annum from Jul 23, the $1,000 capital in above example will grow to $2,526.95 or an increase of $420 after 20 years and coupled with annual deposits, I believe the CPF Special Account monies will grow more to meet more of needs of CPF members.
Yes, 5% interest per annum, that will be my ideal rate for CPF Special Account interest, given high interest rates in town.
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