Why is CPF interest calculated in the current strange manner?

Giving credits to Wilfred Ling, he has done the check with CPF before.
https://www.ifa.sg/cpf-interest/
You can even calculate it for yourself if you are game.

Basically, they take the lowest balance of the month to calculate the monthly interest, compounded and only credit it at the end of the year.

revised answer

My first guess is the related to either the database / processing speed, or system limitation.

My second guess is maybe keeping interest calculations separate from the transaction balance would make it easier, in case parliament passes something like an incentive to some folks, and have it dated retrospectively, eg from the beginning of the year, even if it was say approved in parliament in april.

Tested simulation using my own cpf OA 2015 transactions, and I got an answer that was only 59 cents lower than the interest shown (889.05 vs 889.64) on the 2015 statement. So I found

• the good news is the interest is compounded monthly.
• the bad news is the interest appears to be possibly calculated on the lowest balance figure of the month

The calculation logic I used was

• derive full year interest on beginning balance
• derive 11/12 annual interest on jan change to balance
• derive 10/12 annual interest on feb change to balance.... Etc

So hope this answers your question - there is monthly compounding.

Also, going by this logic then there might be an unexpected impact between timing of transaction and the amount of interest earned in a year.