Interest Rates For CPF Accounts to Drop in Q2 2024
In the second quarter of 2024, the interest rate for the CPF MediSave, Retirement, and Special accounts will drop to 4.05% p.a. This is a slight dip from the first quarter’s 4.08% p.a. rate, but still an increase from 4.04% p.a. in the last quarter of 2023. The CPF and Housing Development Boards also made other announcements on 12 March.
The CPF Ordinary Account (CPF-OA) interest rate will stay at 2.5% p.a. from April to June too. This is because its pegged rate is below the floor rate of 2.5% p.a. Another interest rate which remains unchanged is the concessionary rate for HDB housing loans. It’s pegged at 0.1% above the CPF-OA’s rate, which means it’ll clock in at 2.6% p.a. from April to June.
If you want to make more deposits to your CPF accounts, you’ll be glad to know certain things haven’t changed. You’ll still earn an additional 1% p.a. on the first S$60,000 of the combined balances in your CPF accounts if you’re below 55 years old. Should you be above 55, you’ll earn an extra 2% p.a. on the first S$30,000 of your combined balances instead.
The government added that the bonus interest earned in your CPF-OA will be directed to your CPF Special or Retirement accounts, depending on your age.
What This May Mean For You
Ever since the final quarter of 2001, the interest rate for the CPF MediSave, Retirement, and Special accounts has never dropped below 4%. Therefore, folks in Singapore will definitely welcome the slight increase from the third quarter of 2023 onwards with open arms. This also means now might just be the best time to make an additional deposit to your accounts.
For working professionals, you stand to benefit twice because of the CPF Retirement Sum Topping-Up Scheme (RSTU). When you deposit up to S$8,000 to your CPF Special Account, an equal sum is deducted from your taxable annual income. This is a win-win situation, and something you can consider while CPF interest rates are relatively high.
Related: How to Optimise Your CPF Savings Now That The Special Account (SA) Is Closing
Inflation in the US Rises Again
On 12 March, the US announced its inflation rate for the month of February. The Consumer Price Index (CPI) rose 3.2% on a year-on-year basis, up from January’s 3.1% reading. Although the figures since November 2023 have stabilised at around 3.1–3.4%, they’re still above the Federal Reserve’s (Fed) target of 2%.
As a result, the Fed is intending to keep interest rates at their current level for a longer period of time in order to slow down inflation. February’s increase was led by a 3.8% month-on-month (MoM) rise in gasoline prices after two consecutive dips in January and December 2023.
Additionally, used vehicle prices rose by 0.1% on a MoM basis because the supply was not able to keep up with demand from buyers. The lack of new cars has contributed to this issue as well. This might appear insignificant, but is eye-raising when compared against January’s 3.4% decline.
Fortunately, one silver lining is the Federal Markets Committee still mulling over bringing interest rates down later this year. The Fed might do this up to three times if inflation and economic data are encouraging.
What This May Mean For You
While it’s worrying that inflation in the US can’t break the 3% floor yet, its equity market is chugging along just fine. The S&P 500 index closed at 5,178.51 points on 19 March. This represents a 4.08% gain from 20 February. The Nasdaq 100 and Dow Jones Industrial Average indexes recorded more modest MoM gains, at 2.77% and 1.42% respectively.
If you’re planning to invest during this time, you may want to research the shares of companies in the Financials sector. Banks, insurers, and other firms in this sector tend to benefit in a high interest rate environment. Ditto for cash-rich businesses because the money they have in their reserves has the potential to earn more.
Related: Going For Gold — How to Invest in This Commodity
Bitcoin Hits New All-Time High
The world’s first cryptocurrency is on a roll, with Spot Bitcoin ETFs being approved in January and Central American nation El Salvador amassing Bitcoin (BTC) on a daily basis. On 14 March, BTC would even set a new price record of US$73,794. This is around 6% higher than its previous all-time high of US$69,000 in November 2021.
BTC’s latest record-breaking price is the culmination of a sustained rally which began in October 2023. At the time, one BTC would set you back US$26,858. When 2024 came around, BTC already rose to US$42,280. From there, it wouldn’t pump the brakes until after hitting a new all-time high on 14 March.
As of 20 March, BTC is trading at approximately US$63,550. It may be well off US$73,000, but it’s still a massive improvement over its US$16,000 days in late-2022. During the same period of time, other tokens rallied strongly as well. Ether, the second largest coin by market cap, nearly tripled to hit US$4,066 before paring back to US$3,350 on 20 March.
According to investment bank Goldman Sachs, the surge in cryptocurrency prices was the result of retail trading activity, although institutions are also beginning to participate. It added that the Spot Bitcoin ETFs “prompted a psychological shift” as well.
What This May Mean For You
No one can pinpoint exactly why BTC and its brethren recovered the way they did, even if Goldman Sachs attributed it to retail traders. This highlights just how speculative the asset class is. What’s more, the Monetary Authority of Singapore still recommends “extreme caution” when investing in the regulated Spot Bitcoin ETFs mentioned above.
If you’d like to invest in cryptocurrency to capture the asset class’ momentum, do ensure it comprises only a miniscule part of your portfolio. Additionally, you’ll need to be prepared to lose the entirety of your cryptocurrency investment. Do your due diligence and always make sound decisions for your portfolio. Don’t be lured in solely by the siren song of quick gains.
Related: 4 Main Investment Strategies You Should Know
Japan Makes First Interest Rate Hike in 17 Years
On 19 March, the Bank of Japan (BOJ) raised the country’s interest rates for the first time since 2007. Specifically, its key interest rate rose from -0.1% to 0–1%. This move from the BOJ came on the back of rising wages and consumer prices. If you were wondering, Switzerland was the previous country to exit a negative interest rate environment.
The BOJ will no longer purchase ETFs in the Japanese stock market too, along with real estate investment trusts. Furthermore, it will put an end to its yield curve control (YCC) policy, although it will still buy smaller quantities of Japanese government bonds. However, it remains to be seen how inflation will affect Japan’s economy moving forward.
Despite the interest rate hike, the Japanese Yen weakened further against the US Dollar on 21 March, with US$1 trading for approximately ¥151. Ueda Kazuo, the BOJ’s Governor, said that it will “proceed slowly” with its interest rate hikes rather than implementing them in quick succession.
Investors and banking executives are expecting another increase in either July or October, with the latter looking more likely. That’s because the BOJ would have had around six months of economic data to better assess whether the increase is needed. Also, October is when it publishes its quarterly business sentiment survey.
What This May Mean For You
As the cost of borrowing money in Japan goes up, the prices of goods and services will follow suit. When combined with the recent pay raise for Japanese workers, it will hopefully lead to a situation where inflation is slow and steady in the Land of the Rising Sun. This might lead to more expensive trips for tourists visiting Japan, but there are other benefits too.
For one, you might not have to put up with “shrinkflation” for much longer. Ideally, F&B firms in Japan will reinstate the original sizes of their products and increase prices accordingly. One move you can consider right now is to exchange your Singapore Dollars for Yen, especially if you’re planning for a holiday soon or an investment in Japan’s stock market.
Related: Guide To Foreign Exchange Rates And International Remittance
Read More:
- Inflation Rate in Singapore and How To Protect Yourself Against Rising Inflation
- How to Save Money Amidst High Inflation in Singapore
- Effective Techniques To Make Value Investing Work For You
- How to Invest Your CPF-OA (And What You Can Invest It In)
- Guide To Retirement Planning in Singapore
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