The main aim of the CPF social security scheme by the Singapore government is to encourage salaried citizens to continuously and judiciously save for their future financial needs. The money deposited into any CPF account gets broken into three different account types for all account holders. Ordinary account is the primary account into which the maximum percentage of your CPF savings get deposited. Let us look into some of the most prominent features of CPF ordinary account.
Features of CPF Ordinary Account
- The amount that gets deposited in the CPF ordinary account is used to fund housing, insurance, education and investment needs of CPF account holders.
- The guaranteed interest rate offered on savings in the ordinary account is almost always lesser than that offered on special account or medisave account.
- The first S$20,000 of ordinary account earn an extra 1% of interest per annum.
CPF Ordinary Account Interest Rate
Savings in the CPF Ordinary Account earn a rate of interest up to 3.5% per annum. This includes the extra 1% interest rate that is paid on amount over and above S$20,000 in the ordinary account. CPF members who are aged above 55 years of age have their extra 1% interest transferred either to their SA or RA so as to build a substantial retirement corpus for them.
This rate is decided by a government body and is reviewed quarterly. Savings in OA account earn either the minimum OA interest rate of 2.5% per annum or the 3-month average of interest rates offered by major local banks in Singapore.
Difference between CPF Ordinary Account (OA) and Special Account (SA)
The most major difference between CPF Ordinary Account and Special Account is that of end goal. While OA savings are targeted to meet on-going needs like education, housing and insurance, SA savings are basically aimed at helping CPF members build enough corpus for their retirement years.
OA savings help members look after their present major expenses whereas SA savings enable members save and invest in order to grow their money for use after retirement.
Ways to use Ordinary Account savings
All employed Singaporeans are mandated to contribute to CPF (Central Provident Fund) scheme. The money thus contributed goes into 3 different CPF sub-accounts. There are different ways in which CPF accounts can be used for specific types of expenditure. Following are the best ways in which a CPF ordinary account can be made use of.
- One of the most important uses of CPF ordinary account is that savings from this account can be used towards funding home purchases. These purchases can be of an HDB new flat or an HDB resale flat. Ordinary account savings can be used to buy one or more than one property. The payment for property purchase can be made directly via CPF ordinary account. In case CPF account holder has availed home loan for buying HDB flat then his/her CPF ordinary account can be used towards repayment of home loan.
- Similar to purchase of property via public housing scheme, CPF ordinary account can be used to fund via private properties scheme too. Any Singaporean can use his/her CPF ordinary account savings to buy or build a private residential property for his own occupation or even for investment purposes.
Ordinary account savings can be used to pay the entire purchasing price of property, repay housing loan in full or partially, repay construction loan in full or partially and for payment of stamp duty charges, survey fees, legal fees, and other such related fees that pertains to buying of property.
- CPF ordinary account savings can be used to fund not just education expenses of the CPF accountholder but also of his/her spouse and kids. Education however, should be at any of the approved institutions like local universities and polytechnics.
Up to 40% of ordinary account savings or the remaining OA (Ordinary Account) balance can be used to fund education. However, up to 100% of tuition fees can be funded via CPF ordinary account.
- Insurance schemes can be bought by using money from CPF ordinary account. Dependent’s Protection Scheme (DPS) and Home Protection Scheme (HPS) are two of the most prominent insurance schemes whose premiums can be paid via CPF ordinary account. In case there are insufficient funds in the ordinary account, insurance premiums get deducted from CPF special account. In the extraordinary circumstance of insufficient funds in both the CPF ordinary and special account, insurance premium payment can be made via cash.
- Savings in CPF ordinary account can be used to fund government approved investment schemes. An amount of S$20,000 needs to be set aside in the ordinary account and any amount over and above this can be used for investment purposes. Fixed Deposits, Treasury Bills, Singapore Government Bonds, Investment Linked Insurance Products, Unit Trusts, Annuities, Statutory Board Bonds, Exchange Traded Funds (ETFs) and Endowment Policies are the most popular approved investment products in which ordinary account savings can be invested. Up to 10% of the amount eligible for investment can be used to buy Gold ETFs and other gold products like certificates and coins etc. Similarly, up to 35% of eligible ordinary account savings can be invested in stocks, corporate bonds and property funds.
Transfer of funds from CPF Ordinary Account
Fund transfer from Ordinary Account to Special Account or Medisave account is a common phenomenon which is basically done to capitalize on the higher rate of interest paid to savings in special and medisave accounts as compared to those in ordinary account. Transfer of funds from ordinary account to medisave and special account can be done both for self as well as for any recipient.
However, reverse transfer, that is transferring funds from special account to ordinary account is not allowed. In case an accountholder does not plan to use ordinary account savings towards home purchase then it is a clever move to transfer ordinary account savings to special account in order to earn substantially higher rate of interest.
This however, is an irreversible transaction and as such should be carried out only after one is sure about the exact usage of ordinary account savings. CPF members who are above 55 years of age are not allowed to transfer their OA savings to SA.