CPF savings to earn higher interest
By Yvonne Cheong, Channel NewsAsia | Posted: 19 August 2007 2147 hrs

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SINGAPORE: Prime Minister Lee Hsien Loong announced a one percentage point increase in interest for part of the savings in Central Provident Fund (CPF) accounts in his National Day Rally speech on Sunday.

He said the CPF scheme is being adjusted to better meet Singaporeans' needs for housing, medical care and retirement.

Mr Lee noted that when the scheme pioneered in 1955, Singaporeans generally lived up to 61 years old.

Today, life expectancy is at 80.

Currently, contributions to the Ordinary Account drew interest of 2.5 per cent per annum, compared to 4 per cent for Special, Medisave and Retirement accounts.

With the change, Singaporeans will get one percentage point more in interest for part of their CPF savings.

This will apply to the first S$20,000 in the Ordinary Account, and up to a cap of S$60,000 for all CPF accounts combined.

Half of active CPF accounts have balances below S$45,000.

PM Lee said: "But we will put in one restriction, the catch is you will not take out this part of the money for the CPF investment scheme because this is long-term money and we will treat it like retirement funds and we will give you the higher interest rate."

Mr Lee said the main focus of this move is to help the lower and middle income groups, who have modest balances in their CPF.

The change means that more than half of all active CPF members will have an additional 1 percentage point in interest and these members include young workers who are just starting to save.

A Singaporean who started work at the age of 21, earning S$1,700 a month and staying in a 4-room HDB flat is expected to have S$20,000 more in interest when he turns 55. - CNA/so/ac