CENTRAL PROVIDENT FUND SAVINGS

Mr Hawazi Daipi asked the Minister for Manpower if the Central Provident Fund Board has thought of ways of giving better return on CPF savings.

Dr Lee Boon Yang: The CPF Board provides a risk free return on members' CPF savings. There is a guaranteed minimum interest rate of 2.5% per annum for savings in the Ordinary and Medisave Accounts and 4% per annum in the Special and Retirement Accounts. This has worked to the advantage of CPF members, especially during periods as in the current low-interest environment where the minimum interest rate paid by the CPF Board is higher than the 12-month fixed deposit and savings rates of the four major local banks used to compute the CPF interest rate.

CPF members who believe they can generate higher returns and are willing to take on the investment risks, can invest their CPF savings under the CPF investment Scheme. They can invest in unit trusts, insurance, fixed deposits, bonds and shares. From 1st January 2001, CPF members are also allowed to use their Special Account savings to invest in appropriate retirement-related financial instruments.

For CPF members who do not want to invest their CPF savings but wish to earn a higher interest on their Ordinary Account savings, they may top up their Special Account with Ordinary Account savings to the prevailing Minimum Sum. The prevailing Minimum Sum is $65,000 currently and will be increased by $5,000 every July to reach $80,000 in year 2003.

With the above measures, CPF members are given the choice to earn a risk free guaranteed return by leaving their savings with the CPF Board. Those who want a better return should do so under the CPF Investment Scheme. But as with any investment, CPF members will have to exercise careful judgement and assess their risk tolerance before investing their CPF savings. If they take a long-term view and exercise prudence in their investments, they should be able to enhance their old-age savings.