Saturday, December 23, 2023

CPF Interest Is Coming To Town

Come 31 December, the CPF interest will be credited to the respective accounts (Ordinary Account (OA), Special Account (SA) and Medisave Account (MA), for those below 55 years old), and for CPF enthusiasts this is the day worth looking forward to.

While I would not be delving into the intricacies of the CPF accounts’ interest rates and allocation, which are covered extensively by other blogs and of course, the information is readily available from the CPF website, for this blog post I will cover an important aspect pertaining to investing with CPF.


First, let us look at this diagram (Figure 1):


Fig.1: What if you have more than the Basic Healthcare Sum? (source: CPF) 

For information, the current year’s Basic Healthcare Sum (BHS) is SGD 68,500 and from 1 January 2024 it will be SGD 71,500. So, looking at the flow on the left side, if the 2023 MA interest is more than enough to cover until the BHS limit for 2024, some would be spilled over to SA. And if SA had hit the prevailing year’s full retirement sum (FRS), it would cascade further down to OA.


Yes, this meant that, as long as your MA and SA is at the prevailing BHS and FRS limits respectively, any contribution to MA would go straight to OA. The conclusion is thus, more dry powder for investments using OA.


I had shared about investing using CPF early this year (Part 1 and Part 2) and with our step-down time targeted, we are going slightly aggressive with CPF-OA investing.


Thus, the advice usually dispensed by CPF enthusiasts is to maximise the MA until BHS, so that extra monies will flow to SA to reach the prevailing FRS faster, and with FRS reached, for us, the pool of OA will become bigger for deployment.


Happy holidays to all.


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