CPF Accounts Simplified

In my previous post, I gave a broad overview of how CPF works without detailing the specific accounts within CPF.

I will take a deeper dive into each account and explain why it was created and how we could make better use of it.

Here are the various CPF accounts:

Ordinary Account (OA)
Special Account (SA)
Medisave Account (MA)
Retirement Account (RA)

Ordinary Account: The Firstborn Child

Have you ever had the experience of someone who always refers to or addresses you as the brother or sister of your eldest sibling? Other people usually only remember the name of your older sibling.

The CPF Ordinary Account (OA) is like the first-born child of the CPF

family. Many of our first acquaintance with CPF is via the OA.

It is not surprising because most of us use our OA to fund our home purchases. It is the only account that we could use to buy tangible assets under the age of 55.

The eldest child usually takes care of the home when the parents are not around. Similarly, the purpose of the OA is to take care of your housing needs.

Funds in the OA can be used for:

Housing: Downpayment, mortgage payment, or costs associated with purchasing a home, e.g. stamp duty etc.
Education
Insurance: Home Protection Scheme – mortgage insurance
Investing

Most of our monthly contributions also go into the OA. You can choose to withdraw from it anytime to pay for housing, like a savings account.

However, the OA’s drawback is that it has the lowest interest rate of the CPF accounts – 2.5% p.a.

So, the OA has the smallest potential in terms of growing your money.

Hence, many financial gurus encourage transferring any remaining balance in the OA to the SA to capture higher interest.

Special Account: The Favourite Child

The favourite child in the family gets a bit more attention than his or her siblings. Often parents dote on this child and usually reserve unique future plans for the child.

The CPF Special Account (SA) is the darling of financial bloggers. In fact, the fundamental pillar of the 1m65 strategy is centred around accumulating your SA as early as possible.

The SA provides 4% p.a. interest and does not have a maximum cap. You can grow it until a million (or a few millions) because of its high growth potential of 4%.

However, the SA can only be used for retirement. It means that you could only withdraw from that fund after the age of 55.

You may also accelerate the growth of SA via the Retirement Sum Top up scheme. With this scheme you may choose to:

Transfer any amount from your OA to your SA or your loved ones SA
Top up your SA or your loved ones’ SA with cash (enjoy tax relief)
Voluntary contribute to all your CPF accounts with cash (enjoy tax relief)

So the key is make use of all these top up schemes to accelerate the growth of your SA at a young age and it will compound into a massive amount by the time you turn 55, 65, or 75.

So, think of it as a really high yield fixed deposit account.

Medisave Account: The Middle Child

The middle child often does not get much attention, nor does the Medisave account.

The eldest child will command the most authority while the younger child commands the most attention. The middle child often compromises and gives in to both siblings.

This is what happens when you fall sick or meet any emergencies at any age. The OA and SA will refuse to help because they will not compromise their funds for such emergencies. The MA will often come in these situations and be used to pay the bill.

MA can only be used for Medical Expenses.

It pays an interest of 4% p.a. However, its growth potential is limited because the MA is capped at the Basic Healthcare Sum (BHS).

The BHS is currently at $63,000 and it increases every year.

Once the BHS is achieved, any contributions meant for the MA will be redirected to the SA, the favourite child.

Retirement Account: The Accidental Child Conceived In Your Old Age

At 55, the Retirement Account (RA) will be magically created for you.

Like a plot twist in a novel, it turns out that your new child is very sick and needs new organs or cord blood, or it will die. It so happens that your favourite child (SA) is the most compatible donor. And it turns out your eldest child (OA) is the second most compatible donor.

With conception of the RA introduces us to a few new terms:

Basic Retirement Sum (BRS) – The minimum amount you have to keep in your RA if you wish to withdraw from it. Currently at $93,000
Full Retirement Sum (FRS) – The amount that will be transferred from your SA and OA into your RA. Currently at $186,000.
Enhanced Retirement Sum (ERS) – The addition amount (on top of the FRS) that you can top up your RA. Currently at $279,000

These sums, like the BHS, increases yearly. So please refer to the CPF website for the most up to date calculation.

So how is your RA created? Here are some scenarios:

Your SA has more than the FRS: The FRS amount is transferred from your SA to your RA.
If your SA has less than the FRS: Your SA account will be emptied into the RA. Whatever shortfall between the FRS will be taken from the OA next until the RA reaches the FRS.
If your SA and OA combined is less than the FRS: Both your SA and OA will be fully transferred to the RA, leaving you nothing in both those accounts.

The RA gives 4% interest, and the money in that account is mainly used for CPF LIFE. This annuity pays out regular income until your death.

The amount you can transfer into this account is capped at the ERS.

You can still withdraw from your RA up to the Basic Retirement Sum if you pledge your property.

What is pledging your property?

It means that if you sell your property, you have to refund the pledged sum back (and accrued interest) into your CPF account.

Summary

	OA	SA	MA	RA
Purpose	To fund housing, education, insurance or invest	Retirement savings	Fund medical emergencies and health insurance	Annuity (CPF LIFE)
Interest	2.5%	4%	4%	4%
Can it be withdrawn?	Yes, after age 55	Yes, after age 55	No	Up to BRS if you pledge your property
Maximum cap of amount in the account?	No	No	Basic Healthcare Sum	Enhanced Retirement Sum
Top up available?	No. Just general voluntary contribution to CPF	Yes, Retirement Sum Top Up Schemes – up to FRS	Yes, top up Medisave account	Yes, Retirement Sum Top Up Schemes – up to ERS

The CPF family, as with all normal families, is complicated and misunderstood. Each child plays a different role in the family. Each child has different potentials.

Likewise, each account plays a specific role and has their own interest rates.

We need to give each of them more attention and use them according to their strengths.