The multiple interest rate hikes throughout 2022 by the United States Federal Reserve to combat inflation have had a big impact on domestic interest rates.

Many in Singapore expect the interest rate of the Central Provident Fund’s Ordinary Account (CPF-OA) to rise in tandem with short-term treasury yields, as it is computed based on the interest rates of savings accounts in major local banks.

Most banks are offering interest rates of between 0.05 per cent and 0.15 per cent.

Meanwhile, the popularity of high-yield savings accounts has grown tremendously. One local bank is offering an effective interest rate of around 5 per cent for a deposit of $100,000, if the depositor credits a minimum salary through Giro, and spends a minimum amount on an eligible credit card. Another bank is now offering a promotional rate of 3.88 per cent a year for an eight-month fixed deposit.

These figures raise the following two questions.

First, is the practice of offering high-yield savings accounts and promotional fixed-deposit rates with odd tenors keeping the interest rates of regular savings accounts artificially low? Despite their high requirements, high-yield accounts would be able to attract a significant amount of deposits from a small pool of relatively well-off clients.

The less financially savvy and less fortunate, such as retirees and migrant workers, have to accept a paltry interest rate of less than 0.1 per cent.

Second, does this practice also have an impact on the current interest rate of the CPF-OA? If the interest rates used in the computation are no longer relevant, perhaps the formula ought to be updated, for the benefit of all Singaporeans.

Arthur Pan Yongzhen