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29-10-2023, 07:29 AM
Below are excerpts of emails correspondences with MAS and CPF Board on above matter. Nothing much has change since the Aug 2023 emails. OCBC is still offering 2.7% interest for CPF deposits.
Letter to MAS/CPF/Straits Times: -
A fact not widely known to the general public is that cpf interest is NOT calculated on a daily accrual basis but rather on the lowest monthly balance. What this means is interest will not be earned for any amount deposited or withdrawn during the month. Hence any amount withdrawn for placement into time deposit will lose at least an additional month of interest. See https://www.cpf.gov.sg/member/faq/growin...y-accounts
It is somewhat surprising that as subject expert on financial matter, ocbc bank is also unaware of this. Otherwise why would they offer a 6 month time deposit @ 2.7% for CPF funds? On the surface this appears to provide an additional 0.2% return over the current CPF’s rate 2.5% but in reality, even without taking into account the various transaction and agent fees, it results in interest loss to the depositor. Take for example a $10k deposit placed @ 2.7% for 6 month
Interest from time deposit of $10k at 2.7% p.a. for 6 month = 10,000 x 0.027 x 6 / 12 = 135.00
Interest earned in CPF account for 7 months = 10,000 x 0.025 x 7 / 12 = 145.83
Interest loss = 10.83
I would suggest the following to address the above: -
PS: To MAS: I was unable to obtain the contact email for CPF Board. As the regulatory body responsible for financial related matters, could MAS raise this matter with the Board.
Reply from CPF Board:
We refer to your feedback of 25 July 2023 to the Monetary Authority of Singapore regarding the determination of CPF interest and OCBC bank’s time deposit offering.
The CPF interest rate structure and computation have been carefully formulated to provide a guaranteed and reasonable overall rate of return to members at low risk.
The guaranteed minimum interest rates provide members with the assurance that their CPF returns are shielded from downside risk. At the same time, it allows members to enjoy higher returns when market rates rise. For more information on how CPF interest rates are determined, you may refer to our FAQ.
The Board and the ministries are constantly reviewing the interest rate structure to ensure that CPF members receive fair returns on their CPF savings, bearing in mind the overall environment and level of risk entailed.
On your feedback regarding OCBC bank’s time deposit offering, we would like to share that it is the banks’ business decision to revise their time deposit offering under CPF Investment Scheme. Nonetheless, we have relayed your feedback to OCBC bank for their consideration for their deposit offering in future.
Letter to MAS/CPF/Straits Times: -
A fact not widely known to the general public is that cpf interest is NOT calculated on a daily accrual basis but rather on the lowest monthly balance. What this means is interest will not be earned for any amount deposited or withdrawn during the month. Hence any amount withdrawn for placement into time deposit will lose at least an additional month of interest. See https://www.cpf.gov.sg/member/faq/growin...y-accounts
It is somewhat surprising that as subject expert on financial matter, ocbc bank is also unaware of this. Otherwise why would they offer a 6 month time deposit @ 2.7% for CPF funds? On the surface this appears to provide an additional 0.2% return over the current CPF’s rate 2.5% but in reality, even without taking into account the various transaction and agent fees, it results in interest loss to the depositor. Take for example a $10k deposit placed @ 2.7% for 6 month
Interest from time deposit of $10k at 2.7% p.a. for 6 month = 10,000 x 0.027 x 6 / 12 = 135.00
Interest earned in CPF account for 7 months = 10,000 x 0.025 x 7 / 12 = 145.83
Interest loss = 10.83
I would suggest the following to address the above: -
- Straits Times could perhaps publish an article to educate the public on this
- MAS should remind financial institutions to take the above and any other charges into consideration before offering any products for CPF investment purposes. For depositors affected by the above, MAS should direct the bank to make good the difference.
- CPF Board should consider aligning the basis of interest calculation to general practices as well as review the formula used in determining the CPF interest rate. CPF is a stable and cheap source of long term funding for our government. Saving accounts are short term on call funds – the rate paid for such funds is not an appropriate benchmark for determining the CPF rate.
PS: To MAS: I was unable to obtain the contact email for CPF Board. As the regulatory body responsible for financial related matters, could MAS raise this matter with the Board.
Reply from CPF Board:
We refer to your feedback of 25 July 2023 to the Monetary Authority of Singapore regarding the determination of CPF interest and OCBC bank’s time deposit offering.
The CPF interest rate structure and computation have been carefully formulated to provide a guaranteed and reasonable overall rate of return to members at low risk.
The guaranteed minimum interest rates provide members with the assurance that their CPF returns are shielded from downside risk. At the same time, it allows members to enjoy higher returns when market rates rise. For more information on how CPF interest rates are determined, you may refer to our FAQ.
The Board and the ministries are constantly reviewing the interest rate structure to ensure that CPF members receive fair returns on their CPF savings, bearing in mind the overall environment and level of risk entailed.
On your feedback regarding OCBC bank’s time deposit offering, we would like to share that it is the banks’ business decision to revise their time deposit offering under CPF Investment Scheme. Nonetheless, we have relayed your feedback to OCBC bank for their consideration for their deposit offering in future.
