Source: The Straits Times. 6 Jan 2015
Central Provident Fund (CPF) is a nation-wide social security savings plan for citizens and permanent residents. The monthly CPF contributions go into 3 accounts – the Ordinary Account (OA), the Special Account (SA) and the Medisave Account (MA). OA has a 2.5% guaranteed interest rate and SA and MA has a 4% guaranteed interest rate. SA is for retirement and we can invest the money in SA while MA is for paying medical insurance and hospital bills.
Members can get a further 1% interest for their first $60,000 in the combined CPF balances, of which up to $20,000 is from OA. Members will have a Retirement Account (RA) when we turn 55 years old and this account will hold up to $155,000 or varied amounts, depending on the Minimum Sum on the year which we retire.
CPF contribution and allocation rate depend on our citizenship type, our age and our monthly income. As we age, more will be allocated to the MA and SA account for our healthcare and retirement needs, due to our lengthened life expectancy. Besides using for retirement, CPF money can also be used for housing, healthcare and investments. If you are 18 years old and above with more than $20,000 in your OA or more than $40,000 in your SA savings, it can be used for investing in products such as unit trusts and local stocks under the CPF Investment Scheme (CPFIS).
CPF monies can also be maximized by topping up more than the compulsory CPF contribution and enjoy tax relief of up to $14,000 yearly if you use cash to top up for yourself and your loved ones – up to $7000 for each category. Do note that only voluntary contribution to MA is tax deductible.
Are you using your CPF funds for investments so that you can have a higher return for your CPF money or are you using for other purposes such as housing or education? Does the CPF current interest rate high enough to match current inflation rate?