Thursday, January 20, 2011

CPF: Interest Calculation

When is the best time to do a one time repayment to your CPF?
Based on the 2 explanation below, the best time to do the one time repayment is after all CPF deposit is done, e.g. after Employer has deposited your CPF.
This is because the CPF Savings interest is based on the lowest amount in your CPF for the month. If the money is deducted first before the deposit, then the interest is based on the balance after deduction and does not include the deposit. Assuming you have \$100,000 in your OA on 1st Jan 2011.
Scenario 1: Repayment done before deposit
On 12th Jan 2011, CPF deduction of \$1000 (current balance = \$99,000)
On 15th Jan 2011, CPF deposit of \$1200 (current balance = \$100,200)
CPF Savings interest based on \$99,000

Scenario 2: Repayment done after deposit
On 15th Jan 2011, CPF deposit of \$1200 (current balance = \$101,200)
On 20th Jan 2011, CPF deduction of \$1000 (current balance = \$100,200)
CPF Savings interest based on \$100,200

Do you know how CPF Loan interest is calculated?
It's based on the amount on the last day of the month.

Do you know how CPF Savings interest is calculated?
It's based on the lowest amount for the month. Assuming you have \$100,000 in your OA on 1st Jan 2011. For the first 3 months, the transactions are as follows:
On 10th Jan 2011, CPF deduction of \$200 (current balance = \$99,800)
On 12th Jan 2011, CPF deduction of \$1000 (current balance = \$98,800)
On 12th Feb 2011, CPF deduction of \$1000 (current balance = \$97,800)
On 15th Feb 2011, CPF deposit of \$1200 (current balance = \$99,000)
On 15th Mar 2011, CPF deposit of \$1200 (current balance = \$100,200)

[Interest 2.5% as of Jan 2011]
Interest for the month of Jan 2011 = \$98,800 x 2.5%/12 = \$205.83
Interest for the month of Feb 2011 = \$97,800 x 2.5%/12 = \$203.75
Interest for the month of Mar 2011 = \$99,000* x 2.5%/12 = \$206.25
Interest for the month of Apr 2011 = \$100,200 x 2.5%/12 = \$208.75

*For the month of Mar, the interest is based on 99,000 and not 100,200 because on 1st March, the opening balance is only 99,000 (which is the lowest balance).

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2 comments:

1. Thank you for sharing this useful tip!

2. As the balance on 1st Jan 2011 was \$100,000, CPF Savings Interest in Scenario 2 should be based on \$100,000 not \$100,200.

Scenario 2: Repayment done after deposit
On 15th Jan 2011, CPF deposit of \$1200 (current balance = \$101,200)
On 20th Jan 2011, CPF deduction of \$1000 (current balance = \$100,200)
CPF Savings interest based on \$100,200