Is CPF Ordinary Account’s peg to banking trio’s interest rates still relevant today?

THE Central Provident Fund (CPF)’s ordinary account (OA) interest rate is pegged to the three-month average of the local banking trio’s fixed-deposit rates and savings rates, in the proportion of 80 per cent and 20 per cent, subject to the legislated floor of 2.5 per cent per annum.

It might be time to review those references. This peg has been in place since July 1999, whereas the banks’ products have evolved, and their fixed-deposit and savings-board rates may no longer reflect market rates.

The three banks each offer a high-interest savings account that does not lock in funds the way fixed-deposit accounts do, yet pays much more than a regular savings account. The interest rates on these accounts can go as high as 4.06 per cent if various other conditions are fulfilled.