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6 Reasons To Top Up Your Child’s CPF Account

Being a parent at any age is never easy – other than taking care of your child’s emotional needs, you also have to look after their physiological needs. In today’s modern society, the concept of physiological needs relate to more than just water, food, and shelter for survival – it also translates to money.

Fortunately, there’s always CPF that we can turn to. In fact, you can even turn your child into a half-millionaire by the age of 40, if you start contributing to your child’s CPF account now.

If you are not convinced, here are six reasons you should top up your child’s CPF account:

1. Utilise funds in your child’s CPF account for their education and healthcare needs

As a parent, you may not think of utilising your child’s CPF funds. However, instead of saving the funds till their retirement age of 63 (Singapore’s retirement age at present), you can actually tap into these funds for their wellbeing.

While parents typically pay for their child’s tertiary education through their own CPF Ordinary Account (OA), there’s no reason why your child can’t fork out their polytechnic and university fees if they have enough funds. Under the CPF Education Loan Scheme, your child can use the funds in their CPF OA to pay for their tertiary education.

Furthermore, topping up your child’s CPF account can help maximise their Child Development Account (CDA). For the uninitiated, the CDA is part of the baby bonus scheme to assuage parents’ financial load of bringing up a child. For a start, the Singapore government will put in S$3,000 in your child’s CDA. These funds enjoy an interest of 2% per annum, and can be used for educational and healthcare expenses at Baby Bonus Approved institutions. Unused CDA funds will be redirected into your child’s Post-Secondary Education Account (PSEA) at the age of 13, accruing an interest rate of 2.5% per annum.  When your child turns 31 years old, any unused balance in their PSEA will be transferred to their OA.

That’s not all – the funds in your child’s MediSave Account (MA) can be used for medical expenses and even your hospital bills.

Read more: What Costs Should You Consider When Planning for Your Child’s Education?

2. Earn risk-free attractive interest

While local banks might be raising interest rates for savings accounts, the interest earned on the lowest tier of savings (S$15,000) is still a meagre 0.75 per annum.

On the flipside, CPF members aged 55 and below get to enjoy the following interest rates:

  • Ordinary Account (OA): 2.5% per annum
  • Special Account (SA): 4% per annum
  • MediSave Account (MA): 4% per annum

Additionally, savings of combined CPF balances below S$60,000 (capped at S$20,000 for OA) will accrue an extra 1% interest. This means that your child will enjoy an interest of 3.5% for their OA, or 5% for their SA and MA per annum. And let’s not forget the power of compound interest!

Read more: How CPF Interest Rates Can Help Grow Your Money

3. Hedge against inflation with long investment horizon

Taking advantage of the long investment horizon can help your child hedge against inflation.

CPF interest is calculated monthly and credited by the next year’s 1 January. This interest then compounds annually, which means that the earlier you contribute to your child’s CPF account (especially their SA and MA) the more their savings will grow over time thanks to compounding interest.

Read more: 3 Effective Ways To Hedge Against Inflation

4. Help them save for the future

With the high cost of living and price of HDB flats in Singapore, it’s never too early to start helping your child save for the future.

When your child is of age to purchase a home, the savings in their OA would have been accrued since young, coming in readily to enable them to make the initial down payment for their flats.

5. Turn them into a millionaire

According to 1M65 Movement’s founder Loo Cheng Chuan, you will need S$64,350 to be put into your child’s CPF SA, to turn them into millionaires.

Harnessing the power of compounding interest, and the 5% interest per annum on your child’s first S$60,000 in their SA, this S$64,350 will compound to a whopping S$1 million when your child turns 65. Of course, this projection only holds true if you leave the money untouched.

To work out how much you can save for your child, make use of CPF’s Savings Calculator. Even if you may not be able to put in a lump sum at once, it helps to contribute a small amount to your child’s CPF account regularly – this would still add up to a substantial amount in the long run!

6. Inculcate the importance of saving in your child

Set your child up for financial success by imparting financial literacy concepts to them from a young age.

Instead of saving up for a single purchase, sit down with your child to distinguish reasons for spending money. These can be broken down into categories such as money for saving up for something (e.g. the latest mobile phone or a new gadget), money for spending on a daily basis (e.g. food and drinks), and money for the future (e.g. further education or their first home purchase). Explain how savings are importance, and how CPF can be beneficial to their long-term plan. While the last concept might be difficult to grasp depending on your child’s age, you can even have a lighthearted ‘Annual Review’ with your child to show them how much their CPF funds have grown year over year.

Teaching your child how to save at an early age gives them a longer time horizon to attain your financial goals, as well as more time to benefit from the power of compound interest.

Read more: The Value of Money – 5 Lessons for Your Child

Have peace of mind by leaving a legacy for your child

Of all the things parents do for their children, an important aspect is leaving behind a legacy for them. By contributing to your child’s CPF account, you can be assured that your child will have sufficient funds for their future – be it medical expenses, housing, or for retirement.

To further safeguard your child’s medical treatments, you can also use your MA to purchase private integrated shield plan premiums for your child.

Have more questions about saving up for your child? Reach out to us at ask@plannerbee.co!

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