Baby Bonus, Child Development Account (CDA), CPF

"When I'm old and my memory fails me, this post serves as a reminder on what to do."

Every child born as a Singapore citizen is given a Child Development Account (CDA), with the government having the intent of cushioning expenses related to raising a child. The CDA funds can be used for certain items like paying for childcare and kindergartens, child related medical expenses, medisave approved integrated shield plans. I use this account for a different purpose, to build my daughters wealth.

The only thing that interested me was the Government's Dollar for Dollar match, up to $6k for the 1st and 2nd child. Baby bonus gave us $3k, I topped up $3k , government matched $3k, and the account began with $9k opening balance. Since I can't withdraw these funds for cash, I'll treat this as a CPF account and optimize every dollar.

The CPF website has a nice illustration on what happens with the account through time:

https://www.areyouready.sg/YourInfoHub/Pages/News-A-look-at-how-your-childs-CDA-savings-provide-for-his-changing-needs.aspx

Since we won't be withdrawing any amount from this account, by the time she's 30, based on an opening balance of $9k and the interest rates above, the amount that'll be transferred to CPF OA will be $17,489.19.

What To Do:

Once this sum hits your CPF OA, please shift it into your CPF SA, as you get a higher interest rate there. If you have spare cash in your CPF OA and still have positive inflows into the CPF OA, it is prudent to shift it to your SA to plan for your own retirement. Another post on this.

You stand to gain $24,814.72 more in interest by age 65, by investing this $17,489.19 at a 1% higher interest rate. Your housing loan does not need this $17,489.19 assistance. If it does, then you probably have made the wrong purchase, hence find a way to unwind it.

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