Back in 2018, I learned that CPF computes its interest using a method different from that of typical bank accounts, and shared this information as a footnote to a post then. In a nutshell:
- Bank account computes interest on a daily basis, and then pays you interest monthly (i.e. monthly compounding).
- CPF computes interest on a monthly basis, and then pays you interest annual (i.e. annual compounding).
- For the exact same amount, you will get slightly more interest when using monthly compounding as compared to annual compounding.
The CPF Board also explains this in layperson-friendly language on its website:
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| Source: CPF website, retrieved 28 June 2022. |
Based on this, I have been under the impression that the monthly interest is computed in this manner:
A post I came across at Fatty's Finance also interprets likewise:
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| via Fatty's Finance |
Interest is calculated on the "lowest amount in the month" - sounds correct, and matches with the wording from the CPF website, at least from a layperson's reading of the latter.
After doing my own checks, I believe that this interpretation, as well as my diagram above, is not precisely correct.
