Date: Feb 9, 2018
Do you know that you can open a CPF account for your child?
You simply top up or give CPF contribution to your child, and the CPF account is automatically opened for them.
Why do you want to do that?
- If you have some extra pocket money you can give to your child. And you want to earn very good interest.
- So, if you put your money into your child CPF account, then, you can earn 2.5% up to 5% for the first $60,000 you have in the CPF account.
- Just imagine, your kid is 12 years old, and you start putting some money for them. when they grow up, may be 22 years old (10 years later), their CPF may have enough money to put down as instalment for a 2-room HDB flat… 🙂
- When they get to 55 years old, they probably has more than 1 million in their CPF account. (possible).
- Then, your kid cannot say “Daddy, you never give money to me.” You should tell them, “I got, I put into your CPF account when you all are young and it is earning 4-5% interest every year. Don’t say I never leave some money for you!”
- If you give cash to your kids and it is easier for them to draw out. Well these are not the hard earn money from your kid, it is your money, so, they can withdraw the money and buy car. hahahaha Do you want that? hahaha
So, when you put money in there… the money will be placed in the OA, SA and Medisave account according to these ratio.
So, I asked the customer service staff @ CPF, to explained to me how it works…
- Every year, the max amount of money you can place is $37,740. (not sure where they come up with such a weird number).
- It is break into the following ratio, OA:SA:MA=23:6:8
- Out of the OA, only max $20,000 can earn extra 1% on top of the 2.5%. The extra 1% earnings will go into the SA account. The remaining of the $23,460 after deducted $20,000 is $3,460 will earn the usual 2.5% for that year. And this 2.5% interest will remain in the OA account.
- The SA account allocation is about $6,120 and you can earn extra 1% on top of the 4% annual interest. That is 5% of interest. That will go into the SA account.
- The MA account allocation is about $8,160 and you can also earn extra 1% on top of the 4% annual interest. That is also 5% of interest. That will go into the MA account.
- Year 2. Again, you can top up max of $37,740.
- (the Customer having trouble to understand and trying to find ways, a simpler way to teach me, so, she said, if don’t count the interest first, … ) Let’s say second year, your OA is $46,920, then, another 20k can earn that 3.5%, so, total you have $40,000 to earn the extra 1% to go into the SA account and the 2.5% goes into the OA account. And the remaining $6,920 will only earn 2.5% and goes into the OA account.
- Your SA has increase to $12,240 (without interest for easy understanding) and that will earn you 4%+1%.
- And your MA also increase to $16,320 (without interest for easy understanding) and that will earn you 4%+1%.
- So, you add up the 40k with the SA and MA, and if that exceed 60K, the rest of the excess money in SA and MA will only earn 4%.
so, as you can see, the rate of 2.5%, 3.5%, 4% and 5% are way way much higher than the usual bank rates. So, your money will grow safely in the government account.
So, give some thoughts and see if you want to help your children to ease up their live or not. hahahaha I have done mine. 🙂