Balancing present and future needs: Should you set aside $20k in your OA when buying a flat?

16 May 2019 

​While it’s easy to get caught up in the excitement of owning your first home, don’t forget to consider how your plans today fit into your future goals — such as saving up for a comfortable retirement! One decision worth a second thought is how much CPF Ordinary Account (OA) savings you want to use for your home.

When taking up an HDB loan to fund your flat, you have the flexibility to leave a sum of any amount up to $20,000 in your OA for your future needs! Previously, it was necessary for you to use all of your balance in your OA before being able to take an HDB loan.

Now that you have a choice, should you keep the funds in your OA or use them all for your HDB flat downpayment? What are the advantages of keeping the funds in your OA?

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3 benefits of setting aside funds in your CPF OA

1. You can earn up to 3.5% p.a. interest on your OA savings
Setting aside your OA savings allows you to potentially benefit from the extra interest of 1%p.a., paid on the first $60,000 of your combined CPF balances (capped at $20,000 for OA).

If you do not already have $60,000 in your combined CPF balances, you might want to set aside up to $20,000 in your OA to benefit from this bonus 1% interest on your CPF savings. At 3.5% p.a. interest rate, your OA funds will be earning a higher interest than the HDB home loan interest rate of 2.6% p.a.!

2. You have an emergency buffer to cover monthly instalments in times of need
A portion of your working CPF contribution will be used to repay your HDB loan each month. In the event of a loss of monthly income (e.g. from unemployment or illness), this monthly contribution used to service your HDB loan repayment would also be lost.

By setting aside funds in your CPF OA, you would have a buffer to repay your monthly HDB loans in the case of such emergencies.

$20,000 in your OA, for example, could tide you through about one year of HDB loan repayments without additional CPF contributions or the need to fork out cash!

3. You can transfer the savings to your Special Account (SA) to earn up to 5% p.a. interest for your retirement
If you want to grow your savings even further, you can also transfer some of the funds you’ve set aside in your OA to your SA.^

Your SA has an attractive base interest rate of 4% p.a., which can go up to 5% p.a. with the extra 1% p.a. given on the first $60,000 of your CPF balances (capped at $20,000 for OA).

This means that, if you’ve no other pressing needs for your OA savings, transferring them into your SA can be a great way to multiply your retirement funds as your savings compound and grow at 5% p.a.​​ interest each year!

Something to consider before setting aside your OA savings

While setting aside your OA savings has its benefits, always take into account your personal circumstances to see if it’s the right move for you.

Remember, if you set aside any amount in your OA, your HDB loan will also increase by that amount. A higher HDB loan means higher monthly repayments and/or a longer loan period, so you’ll need to see if you can afford these monthly repayments. 

Of course, you could also consider setting aside a smaller sum that you’re comfortable with, rather than the maximum of $20,000, and use the rest of the OA savings to pay your downpayment.

In sum, choosing whether or not to set aside your OA funds requires you to weigh your future needs (of growing retirement funds) and short-term needs (of meeting your monthly instalments comfortably)!

*The extra interest earned on OA savings will be paid into the SA for members below age 55 or Retirement Account for members aged 55 and above.

^CPF transfers from OA to SA are only applicable for members below age 55, and can be made up to the current Full Retirement Sum. Transfers are irreversible.​​

The information has been updated as at 10/9/2020.

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