Since 1 January 2008, savings in the Special, Medisave and Retirement Account (SMRA) have been invested in Special Government Securities (SSGS) which earn an interest rate pegged to the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%.
Based on this formula, the interest rate would have been about 3.5% today.
To help members cope with the transition, the Government had provided a 4% floor rate for SMRA interest for two years up to December 2009. This was extended to December 2010, in light of the global economic conditions and exceptionally low interest rate environment a year ago.
The Government has decided to further extend the 4% floor rate for interest earned on all SMRA monies for another year until 31 December 2011. Thereafter, interest rates on all CPF account monies will be subject to a minimum rate of 2.5% per annum.
In recent weeks, the yield of 10Y SGS has been way below 2.5%. Right now, it is only about 2.0%. With GE coming, govt is not going to do anything that will piss off millions of Singaporeans! ha ha.
Personally, I don’t think CPF will start using the new SMRA interest formula until the yield of 10YSGS reaches nearer 2.9%, or until the US Fed raises short term rates by 100 basis points. We can safely wait until well into 2012.
On another note, the persistently low (and getting lower) yields of 10YSGS and US 10Y treasuries means that many people have strong doubts about the economic recovery. For those in risk assets, do keep a close eye on your stops.Reply