5 Things About CPF That You May Not Know


CPF is a compulsory savings and pension scheme for working Singaporeans and permanent residents. I'd start with a brief outline of things to note especially if you are not yet familiar with CPF system.

The key benefit of having your savings in CPF is the interest given. Albert Einstein famously once said

“Compound interest is the eighth wonder of the world. 

He who understands it, earns it. He who doesn’t, pays it.”

CPF is essential as it can be used to help fund retirement, healthcare, and housing needs for Singaporeans and Permanent Residents(PR).

#1 You can choose to keep the first $20K in your CPF OA if you are taking a HDB loan

Do you know what percentage of downpayment you have to pay when taking a HDB loan?

HDB Concessionary Loan has a maximum LTV of 90%. 

The amount you can borrow to finance your home is called Loan-To- Value (LTV) ratio.

This means, you have to pay a downpayment of 10% of property price and it can be paid through cash or CPF Ordinary Account, or a combination of both.

If you have saved up enough you should choose to not use the first $20K in your CPF OA. You can strategise it by topping up your downpayment with cash.

You may ask why use cash when you can use CPF? This is because the first $20K in your CPF has an interest rate of 3.5% whereas if you keep your cash in the bank, your interest yield is approximately 0.6%. A HUGE DIFFERENCE!

Source : MoneySmart

Let me break it down. 

Say for example your HDB cost $500K. Your downpayment sum works out to be $50k. (10% of 500K)

You can either use your CPF OA or cash to finance this downpayment.

Assuming you have $50K cash and $50K in CPF OA. Instead of using all your CPF OA to finance your HDB. You can strategise in a way where you use only $30K of your CPF OA and remaining $20K cash to finance your HDB downpayment.

In the past, you are not allowed to strategise in such a way, you have to make full use of your CPF OA to finance your house.

Hence, if you have sufficient savings, do consider keeping your first $20K in CPF OA account.

#2 You cannot use CPF OA to buy overseas shares

CPF allows you to purchase shares. However, you are not allowed to purchase individual overseas shares such as Apple, Google, Alibaba, Tesla, etc. 

If you are still keen on investing abroad, you can buy funds. One such fund is United Global Quality Growth Fund, managed by Wellington Asset Management. Besides that you some other options are Singapore Government Bonds, ETFs, etc.

Do note that you must have at least $20K before you can invest. The remaining 35% of amount you have then can be used to buy shares.

Here is a simple example:

Say for example you have $120K in your CPF OA. $20K must be kept away. You now have $100K left. 35% of this 100K will then be able to buy shares ($35K). However, if you are not buying individuals shares, you can invest all the remaining $100K into funds.

#3 Investing with CPFSA is usually not a good idea

CPF OA has a return of 2.5% However, CPF SA has a 4% return.

This 4% is a stable and guaranteed return which is pretty decent. If you were to use it to invest in funds, this is your opportunity cost.

Funds that qualify for CPFSA are generally balanced and low risk

The summary table below shows us that only 6 funds has managed to give us a return of more than 4%pa over a 5year period.

Hence when you compare it against the 4% benchmark guaranteed in CPF SA, the investment is usually not a good idea.

#4 You have to withdraw from CPF SA first for amounts above FRS

Did you know you can withdraw money from your CPF at age 55 if you have full retirement sum (FRS)?

You may have been diligently building your CPF over the years. When you decide to cash out and withdraw money, you would want to withdraw from your CPF OA first right? To earn more interest in your CPF SA. 

However, that is not the case.

You have to exhaust your CPF SA before you can withdraw money from your CPF OA. 

#5 You can reserve your CPF OA to pay for mortgage after 55

Your CPF OA can still be used to pay for mortgage after age of 55. When you reach the age of 55, a retirement account is created for you. 

This retirement account is fuelled by CPF SA and the remaining is drawn from your CPF OA. Some are worried that all the funds in CPF OA will be moved to the retirement account. 

However, if you still have mortgage payments, you need to apply for reserve in your CPF OA before your 55th birthday. 

Do note that if you are still employed and have a huge sum of mortgage, your CPF contribution towards your OA drops from 15% to 12% after you turn 55.

This is crucial. You should do some calculations to see if you can afford your mortgage. If your CPF OA is unable to cover, you may have to top up with cash. This may cause financial hardships and you should consider downsizing your apartment. 

Kasper Toh: Enthusiastic Research Associate and Writer at The Astute Parent!
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