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How much to keep in your CPF OA after buying a home

Should you wipe out your CPF ordinary account to buy a home? This is an age-old dilemma almost every Singaporean has to contend with. For the uninitiated, here’s a crash course on CPF OA: If you’re working in a full-time job, you and your employer make contributions to your CPF OA every month. The exact contribution and allocation amounts are dependent on your age. When buying a house, most people pay 5% of the price tag in cash and much more through a bank loan. The balance that isn’t covered by either? That’s where your CPF OA comes in.


How much should you leave in your CPF OA?


There’s a lot of talk about earning interest on your CPF Special Accounts. With a base rate of 4% per annum, it’s not hard to see why people who are relatively-cash rich are transferring funds from their OA to SA. The latter never looked more attractive than when the financial markets are volatile.


What most people do not consider is that their OAs also earn interest. While its rate isn’t as high as SA’s, the first $20,000 in your OA still earns a decent 3.5% per annum. The rest of it earns 2.5%, which is still higher than what many fixed deposit accounts offer. Furthermore, these rates are revised upwards once you hit 55.



Let’s assume you’re buying a million dollar property with your spouse. You’ve set eyes on an HDB flat in the central region and are this close to taking out your first loan. The breakdown is as follows: 5% in cash, 75% in loan, and 20% in your CPF OA balance. This works out to be $200,000. Now add your buyer’s stamp duty of $24,600 and legal fees of $3,000 to the equation, and you’ll need a total of S$237,000 to get the deal across the line. Imagine that both you and your spouse have been working for nearly a decade now, and have $150,000 in each of your OAs. With a combined amount of $300,000, it can be tempting to wipe both your OAs out and take out a smaller loan. But should you do it?


Well, we recommend keeping $20,000 in each of your OAs for three reasons. One, you get to take advantage of its interest rate. Two, you would be bracing for a rainy day, and a little prudence never hurt anyone. Three, your CPF OA is just about the safest place to park your savings.


Nevertheless, no matter how much of your CPF OA you end up using, there’s a catch. When you sell your property, you will have to return the principal amount used for downpayment, monthly instalment, as well as the accrued interest you would’ve earned had you left the money inside. Which brings us to the next question.

Is CPF accrued interest a deal breaker?


When you look up the property page on your CPF portal, you would realise that you’ve incurred an amount called accrued interest cost. This is derived from the opportunity cost that would’ve been incurred had you left your CPF OA money alone, and found other means to finance your home.


Really, whether or not it is a deal breaker depends on your priorities across different stages of life. Personally, we do not see accrued interest cost as a cost in itself. To us, it simply means that this money is not to be mistaken for cash proceeds, and isn’t yours for the taking upon selling your home. Instead, it will be returned to your CPF OA, which can then be used when you buy your next property. Need more guidance on financing your new home? Reach out to me (Harvey Chia) at 9199 9141.





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