Are you wondering how to make the most out of your CPF Ordinary Account (OA)?
As someone who’s navigated the complexities of CPF savings and retirement planning, I’m here to guide you through it all.
In this post, you’ll learn:
- What the CPF Ordinary Account (OA) is
- How you can use your OA for housing, education, and investments
- The pros and cons of transferring funds to your Special Account (SA)
- Important details about CPF refunds upon property sale or transfer
Did you know that not managing your CPF OA wisely could impact your financial future?
Let’s dive into these details to ensure you’re making the best decisions for your savings.
Whether you’re just starting or looking to maximise your returns, this guide is for you.
Ready to secure your financial future? Keep reading to find out more!
What is the CPF Ordinary Account (OA)?
The CPF Ordinary Account acts as a short-term savings account designed to help you manage and pay for significant expenses, such as housing and education.
This is incredibly beneficial for many Singaporeans, as these are often some of the most substantial financial commitments you’ll face.
Your funds in the OA will also earn a minimum interest rate of 2.5% per annum.
However, to provide an additional boost to your savings, the CPF Board offers an extra 1% interest on the first S$20,000 in your OA, bringing the effective interest rate to as high as 3.5% annually for this portion.
This higher interest rate is particularly advantageous as it helps maximise the growth of your savings, ensuring that you have more funds available when you need them.
What can I use my CPF Ordinary Account for?
Here’s a closer look at how you can use your CPF Ordinary Account for:
Housing
One of the primary uses of your OA is for housing expenses.
Whether you’re buying your first home or repaying a mortgage, your OA funds can be utilised to cover down payments, monthly loan repayments, and associated costs such as stamp duties and legal fees.
This feature makes homeownership more accessible, easing the financial load of securing and maintaining a property.
Education
Your OA can also be used to pay for educational expenses.
This includes covering tuition fees for your own studies, or for your spouse’s or children’s education.
Approved courses at local tertiary institutions, such as universities and polytechnics, are eligible.
By using your OA for education, you can reduce the immediate financial burden and invest in your family’s future.
Insurance
Your OA funds can be used to ensure financial protection for you and your loved ones through various insurance schemes:
Integrated Shield Plans
If you’re only on the basic MediShield Life, you can get an integrated shield plan that further pays for your hospitalisations in private hospitals or higher ward classes in public hospitals.
CareShield or Eldershield Supplements
Once you’re 30, you can also enhance your CareShield Life or Eldershield plans with a CareShield supplement.
This gives you extra payouts for when you’re unable to perform the Activities of Daily Living (ADLs).
Dependants’ Protection Scheme (DPS)
The Dependants’ Protection Scheme is a term insurance that provides financial protection to your family in the event of your untimely death, terminal illness, or total permanent disability.
Premiums for the DPS can be paid using your OA, ensuring that your dependants have some financial security during difficult times.
Home Protection Scheme (HPS)
The HPS is a mortgage-reducing insurance that safeguards your family’s home should you become unable to continue paying your housing loan due to death, terminal illness, or total permanent disability.
Premiums for the HPS can also be paid using your OA, providing peace of mind that your loved ones will have a roof over their heads no matter what happens.
Do you need to pay back your CPF OA?
Education
When it comes to using your CPF Ordinary Account (OA) for education expenses, it’s important to understand the repayment obligations that come with it.
If you use your OA to fund your or your family member’s education, repayment will be required after graduation.
You will need to start paying back the loan one year after graduation.
The repayment process is designed to be manageable.
The minimum amount you can pay per month is S$100, ensuring that the repayments do not overly strain your finances.
However, it’s crucial to note that you are not allowed to use your own CPF savings to repay the CPF education loan.
This means you will need to plan and budget for these repayments using your other financial resources.
CPF Refund Upon Property Sale or Transfer
If you decide to sell or transfer your property to another party, you must refund the sum of the principal amount withdrawn from your CPF Ordinary Account (OA) for the property purchase, along with the accrued interest.
This ensures that the funds used for the property are returned to your CPF account, maintaining the integrity of your retirement savings.
In cases where any option monies, such as option fees and option exercise fees, were utilised, you are required to refund these amounts to your own and your co-owner’s CPF accounts.
These fees are considered part of the property’s selling price and must be accounted for in the refund process.
If you sell your property at market value, you generally do not need to top up any shortfall.
This holds true provided the selling price (including option monies) is insufficient to cover the amount utilised from your CPF, plus the accrued interest, after settling any outstanding loan.
The funds will be distributed to you and your co-owner based on the proportion of CPF savings each of you used for the property.
When selling your share of the property, it must be done at market value.
If the selling price does not cover the amount to be refunded to your CPF OA after repaying your share of the loan, the amount to be refunded will be the greater of the following: the sum of the principal amount withdrawn from your CPF OA for the property and the accrued interest.
For those aged 55 and above who have pledged their property as part of their retirement sum, the pledged amount must also be repaid upon selling the property.
This amount will contribute towards your Full Retirement Sum (FRS) in your CPF Retirement Account (RA).
Any residual funds remaining after the refunds have been credited into your CPF will be reimbursed to you in cash within one week.
Voluntary Housing Refund
If you have utilised your CPF Ordinary Account (OA) for housing payments, you have the option to make a voluntary housing refund to your CPF OA even if you are not selling your property.
This strategy allows you to take advantage of the interest earned in your CPF OA, thereby increasing your returns and boosting your retirement savings.
By making a voluntary refund, you are not only enhancing your retirement nest egg but also gaining flexibility.
The refunded amount can be mobilised for other CPF-approved schemes, including housing, education, insurance, and investments.
This gives you more options for using your CPF savings effectively.
Moreover, making repayments to your CPF OA now means you will have lesser refunds to make in the future when you eventually sell your property.
This can potentially enable you to realise profits from the sale of your property, as the amount needed to be refunded will be reduced.
The maximum amount you can repay to your CPF is capped at the sum of the principal amount withdrawn from your CPF OA for the property purchase and the accrued interest.
This ensures that your repayments are managed within the limits of your initial withdrawals and the interest accrued, providing a clear framework for your voluntary housing refunds.
You can also invest your CPF OA funds
Investing the funds in your CPF Ordinary Account (OA) is a smart way to potentially earn higher returns compared to the 2.5% risk-free rate.
Once you set aside a minimum balance of $20,000 in your OA, the remaining funds become investible under the CPF Investment Scheme (CPFIS).
The CPFIS allows you to grow your retirement savings by investing the funds in your CPF OA and Special Account (SA) into a variety of investment products, including:
- Unit Trusts (UTs)
- Investment-linked insurance products (ILPs)
- Annuities
- Endowment policies
- Singapore Government Bonds (SGBs)
- Treasury Bills (T-bills)
- Exchange-Traded Funds (ETFs)
- Fund Management Accounts
- Fixed deposits
- Stocks*
- Property Funds*
- Corporate Bonds*
- Gold ETFs**
- Other Gold products (e.g. Gold certificates and savings accounts, Physical Gold)**
To embark on your CPFIS-OA investment journey, you need to open a CPF Investment Account with a CPFIS agent bank.
The CPFIS agent banks include:
- DBS Bank Ltd (DBS)
- Overseas-Chinese Banking Corporation Ltd (OCBC)
- United Overseas Bank Ltd (UOB)
Investing your CPF OA funds can be a beneficial strategy to enhance your retirement savings.
By choosing suitable investment products, you can potentially achieve higher returns and build a more robust financial future.
Find out more about CPFIS in our comprehensive guide!
You can also transfer your CPF Ordinary Account funds to your CPF Special Account
Increased interest rate
One of the advantages of transferring your CPF Ordinary Account (OA) funds to your CPF Special Account (SA) is the higher interest rate you can earn.
The SA offers an attractive interest rate of up to 5% per annum, which is significantly higher than the OA’s base rate of 2.5%.
By transferring your OA funds to your SA, you can take advantage of this increased interest rate, allowing your savings to grow more rapidly and securely.
Higher retirement payouts in the future
Transferring funds from your OA to your SA not only boosts your interest earnings but also contributes to higher retirement payouts in the future.
The funds in your SA, combined with those in your OA, will form your Retirement Account (RA) when you turn 55.
With a larger balance in your SA, thanks to the higher interest rate, you will have more substantial retirement savings.
This means you can look forward to higher monthly payouts during your retirement years, ensuring greater financial stability and peace of mind.
Less flexibility to use CPF savings for your housing needs
However, transferring funds from your OA to your SA comes with certain trade-offs.
One significant drawback is the reduced flexibility in using your CPF savings for housing needs.
The OA allows you to use your funds for various housing-related expenses, such as down payments, monthly loan repayments, and other associated costs.
Once the funds are transferred to the SA, they can no longer be used for these purposes, limiting your ability to finance your housing needs.
Less tax relief if you top-up to the FRS
Another consideration is the impact on potential tax relief.
If you perform cash top-ups to your Full Retirement Sum (FRS) in your CPF accounts, you might receive tax relief.
However, by transferring funds from your OA to your SA, you could reduce the amount of cash top-ups needed to reach your FRS, thereby potentially lowering the tax relief you would otherwise receive.
This is an important factor to weigh when deciding whether to transfer your CPF OA funds to your SA.
A CPF transfer is an irreversible process
It’s crucial to understand that a CPF transfer from your OA to your SA is an irreversible process.
Once you transfer the funds, they cannot be moved back to your OA.
This means you must carefully consider your current and future financial needs before making the transfer.
Ensure that you are comfortable with the reduced flexibility in using your CPF savings for housing and other needs, as well as the long-term commitment to growing your retirement savings through the SA.
Should you top up your CPF SA?
Yes you should top up your CPF SA, if:
- If you have excess funds and would like to meet the ERS
- If you are risk averse and would like to rely on CPF LIFE for your retirement funds
No you shouldn’t top up your CPF SA, If:
- If you need the liquidity
- If you want to invest to earn more than the CPF SA interest rate
I covered this in detail in my post here.
Frequently Asked Questions
Why should you make a voluntary refund when you are not selling your property?
Making a voluntary refund when you are not selling your property can be beneficial.
By doing so, you leverage the interest earned in your CPF Ordinary Account (OA), enhancing your retirement savings.
Additionally, this proactive step reduces the amount you’ll need to refund in the future when you do sell your property, potentially allowing you to retain more profits.
It also frees up funds in your OA for other CPF-approved uses, such as education, insurance, and investment schemes.
How much interest does the CPF Ordinary Account pay?
The CPF Ordinary Account (OA) pays a base interest rate of 2.5% per annum.
Additionally, an extra 1% interest is earned on the first $20,000 of your OA balance, bringing the effective interest rate to as high as 3.5% per annum for that portion.
This ensures your savings grow steadily, contributing to your financial security.
Conclusion
So, we’ve covered a lot of ground about the CPF Ordinary Account (OA).
From understanding what the OA is and how it can be used for housing and education, to exploring the benefits and trade-offs of transferring funds to your Special Account (SA), and even the option of investing your OA funds for potentially higher returns.
We also delved into the implications of selling your property and making voluntary housing refunds.
Whether you’re planning for a comfortable retirement, managing your current expenses, or looking to grow your savings, your CPF OA plays a crucial role.
Remember, while it offers flexibility and security, it’s essential to consider your individual financial situation and goals.
If you’re feeling a bit overwhelmed or unsure about the best steps to take, don’t worry!
You can chat with one of our financial advisor partners for free.
They can help you navigate your CPF options and make informed decisions that suit your needs.
After all, planning for your financial future is important, and we’re here to help you every step of the way.
References
- https://www.cpf.gov.sg/member/infohub/educational-resources/simple-steps-to-make-a-cpf-transfer-from-your-oa-to-sa
- https://www.cpf.gov.sg/service/article/what-are-the-cpf-interest-rates
- https://www.cpf.gov.sg/member/cpf-overview
- https://www.cpf.gov.sg/service/article/how-are-my-cpf-contributions-allocated-to-my-cpf-accounts
