As Singaporeans start working, they begin contributing to their CPF (Central Provident Fund) account. The CPF account consists of three main components: the Ordinary Account (OA), the MediSave Account (MA), and the Special Account (SA). In this article, we will focus on the OA, its purpose, uses, interest rates, and what happens to the funds when you turn 55 or pass away.

Contributing to Your CPF OA
The contribution rates to your CPF account depend on your age and range from 12.5% to 37% of your monthly wages. For individuals aged 55 and below with monthly wages under $750, the employer contribution rate is 17%, while the employee contribution rate is 20%, totaling 37% of wages. The employer contribution of 17% is not included in your total monthly wages and is not subject to income tax. You may also open a CPF account when making a cash top-up for your child or when a Singapore Citizen newborn qualifies for a MediSave grant.

CPF OA Distributions Change with Age
The distribution of CPF contributions to your OA changes as you get older. For individuals aged 35 and below, 23% of their total monthly wages are allocated to the OA, 6% to the SA, and 8% to the MA. As you age, the contribution rates to the OA decrease, with more funds allocated to the SA and MA.

Interest Rates on CPF OA
Savings in the CPF OA earn a minimum interest of 2.5% per annum, which is the legislated minimum interest. The interest rate is reviewed quarterly and is based on the 3-month average of major local banks’ interest rates. CPF MA and SA earn a higher interest rate of 4% per annum. The interest is credited to your CPF account at the end of the year. Additionally, you can earn an additional 1% interest per annum on the first $60,000 of your combined CPF balance, with up to $20,000 coming from your CPF OA.

Investing Using CPF OA Funds
You have the option to invest your CPF OA savings to grow your retirement nest egg. After setting aside $20,000 and a buffer for charges by your Agent Bank (DBS, UOB, or OCBC), the remaining balance of your OA savings can be invested under the CPF Investment Scheme (CPFIS). You can choose from a range of investment products such as shares, gold, bonds, unit trusts, and investment-linked insurance products. The investment options for CPF OA are limited to ensure that Singaporeans do not engage in higher-risk investments.

Using CPF OA Savings for Housing
You can use your CPF OA savings to buy a property or service a housing loan. For purchasing a property, you can use up to 20% of the purchase value from your CPF OA savings and pay the remaining 5% in cash. The amount of CPF you can use depends on whether the lease can cover you for 95 years. There are limits on using CPF savings for housing to ensure you have enough savings for retirement.

Withdrawal Limits
You can only use your CPF savings for housing up to the Withdrawal Limit, which is the maximum amount of CPF you can use, capped at 120% of the Valuation Limit. The Valuation Limit is the lower of the purchase price or market valuation at the time of purchase. Once you hit the limit, loan repayment must be in cash. CPF savings can only be used for properties with a remaining lease of more than 20 years.

Using CPF OA Savings for Insurance
Premiums for the Dependents’ Protection Scheme (DPS) can be paid from your CPF OA and/or SA. The DPS provides basic financial protection for you and your family in the event of death, terminal illness, or total permanent disability. The premiums increase as you get older, and you can opt out of the DPS if you want to conserve more of your CPF savings for retirement.

Using CPF OA Savings for Education
You can use your CPF OA savings for education under the CPF Education Loan Scheme. The scheme allows you to use your OA savings to pay for subsidised tuition fees for yourself, your children, spouse, siblings, or relatives. The amount that can be used is subject to the available withdrawal limit, which is either 40% of your accumulated PA savings or your remaining OA balance, whichever is lower.

What Happens When You Turn 55
When you turn 55, your CPF SA and then OA savings will be transferred to your Retirement Account (RA) up to the Full Retirement Sum (FRS). Your RA will be created for you, and your SA and OA savings, up to the current FRS of $198,800 (as of 2023), will be transferred to your RA to form your retirement sum.

What Happens to Your CPF When You Die
If you made a CPF nomination, your CPF savings will be distributed to the nominee(s) according to the proportion stated in the nomination. If you did not make a CPF nomination, your CPF savings will be transferred to the Public Trustee for distribution according to the intestacy or Muslim inheritance laws of Singapore. To avoid significant fees, it is recommended to make a CPF nomination.

In conclusion, the CPF OA serves various purposes such as housing, investment, insurance, and education. It earns a minimum interest of 2.5% per annum and allows for investment under the CPF Investment Scheme. The funds can also be used for purchasing a property or servicing a housing loan, paying insurance premiums, and subsidised tuition fees for education. When you turn 55, your CPF savings will be transferred to your RA, and in the event of death, your CPF savings will be distributed according to your CPF nomination or intestacy laws.


Benjamin Low
Benjamin Low

Benjamin is known as The Passive Income Guy. He has helped hundreds of people to build passive income. He is also a member of the Million Dollar Round Table, and Certified Financial Planner™ (CFP®) and Certified Private Banker (CPB).

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