This is the minimum rate guaranteed by the Government for three CPF accounts: Special, Medisave and Retirement Accounts (SMRA).

Savings in the Ordinary Account will earn interest of 2.5 per cent.

The 4 per cent guarantee is for two years, starting from Jan 1 this year, said a statement from the CPF Board yesterday.

Thereafter, the floor rate will be 2.5 per cent for all CPF accounts.

The change follows a modification in the way the CPF interest rate is being calculated, a move announced by Prime Minister Lee Hsien Loong at last year's National Day Rally.

From Jan 1 this year, the interest rate for savings in the SMRA is pegged to the 12-month average yield of the 10-year Singapore Government Security plus 1 per cent. This market-based rate fluctuates every three months.

Taking the one-year period from Sept 1 last year to Aug 31, the CPF Board calculated it averaged 2.77 per cent.

A chart it gave shows the peak was in June, at around 4 per cent. The lowest was in late February, around2 per cent.

With the rates averaged out, the SMRA interest worked out to 3.77 per cent, including the extra 1 per cent. The old system gave the SMRA a fixed 4 per cent.

Another change in the new interest rate regime is the interest on the first $60,000 saved in all the CPF accounts of a member. Only $20,000 of this sum can be from the Ordinary account.

The combined balance will earn an extra 1 per cent interest. So, the SMRA will get 5 per cent and the Ordinary Account, 3.5 per cent.

The extra interest earned will go into a member's Special or Retirement Account to boost his or her retirement savings.