In 2021, people in Singapore made a record S$4 billion in top-ups to their Central Provident Fund (CPF) accounts. Clearly, many see the benefits in supplementing the basic contributions. Here are five reasons why you should top up your CPF.
What are CPF top-ups?
The Central Provident Fund (CPF) is a mandatory social security savings scheme all Singaporean citizens and permanent residents (PRs) are automatically enrolled in.
Every month, your employer deposits 20% of your salary into your CPF up to a contribution cap, which is split into the Ordinary Account (OA), Special Account (SA), and MediSave Account (MA). For those aged 55 and above, the OA and SA accounts will merge to become the Retirement Account (RA).
You can also make voluntary CPF contributions or top up your parents’ CPF accounts, which will give you tax rebates as well.
Reasons to top up
1. Higher interest rates
In 2021, the average interest rate the local banks offered was 0.09%. That is much lower than what CPF is offering. Furthermore, the first S$60,000 in your CPF accounts earns extra interest, capped at S$20,000 in the OA.
| For members below age 55 | For members age 55 and above | |
| OA interest rate | 2.5% per annum | 2.5% per annum |
| MA interest rate | 4% per annum | 4% per annum |
| SA interest rate | 4% per annum | 4% per annum |
| RA interest rate | Not applicable | 4% per annum |
| Interest rates your savings could earn across your CPF accounts | Up to 5% on the first S$60,000 of combined CPF balance (capped at S$20,000 for OA) | Up to 6% on the first S$30,000 of combined CPF balance (capped at S$20,000 for OA) Up to 5% on the first S$30,000 of combined CPF balance (capped at S$20,000 for OA) |
2. Lower taxes
You can enjoy tax rebates if you top up either your CPF account, or that of your loved ones.
From 1 January 2022, you can get tax relief of up to S$16,000 per year for cash top-ups:
- Up to S$8,000 per year if you make a cash top-up to your own CPF account
- Another S$8,000 per year if you make a cash top-up to your loved ones’ CPF accounts
However, remember you are eligible for tax reliefs only if you top up in cash. There is also an S$80,000 personal income tax relief cap.
3. Early 20% more in interest if you top up early
If you intend to contribute to your CPF voluntarily, you should do so now. Since the CPF interest is calculated monthly, you can earn more interest by topping up in January rather than in December. In just a decade, you will make 20% more in interest — that’s an extra S$5,000 if you have S$70,000 in CPF savings.
Source: CPF
4. Save up for retirement
Want to retire in peace? You should start planning for it even as a young adult. With Singapore’s high cost of living, saving up early can help you hedge against inflation.
Did you know that among the nearly 400,000 CPF members that had at least S$500,000 in their accounts, around 8,500 of them were aged 40 and below? That is not a huge number, but it shows it is possible to save half a million dollars by the age of 40.
Read more: CPF hacks for you to become a millennial half-millionaire
5. It’s possible to start small
Keeping a large sum of money aside for retirement seems daunting. But your money can still grow substantially if you just save a small amount regularly. That is because of compound interest.
For example, instead of depositing S$8,000 all at once into your CPF account, you could transfer a portion of your monthly salary to your account every month instead. It will not seem as painful as parting with a huge chunk of cash suddenly, and yet your retirement nest egg is growing steadily.
How to top up CPF
To top up your CPF or that of your loved ones, simply disable your pop-up blockers and fill up this form.
Strategic financial planning for your future
When it comes to investing and saving for retirement, it is always wise to start early. Compound interest and tax reliefs make a huge difference to your money, so you should seriously think about how you can make your CPF account work better for you.
