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3 Things To Know About Your CPF

The Central Provident Fund (CPF) system can be extremely confusing, especially for someone just joining the workforce. However, the objective of CPF has always been simple: to ensure we all have a financial safety net at the end of our working life.

Here are three key things you need to know about your CPF.

The Returns On My CPF

Once you have money in your CPF, it will automatically start earning interests for you.

The CPF is split into three accounts: Ordinary Account (OA), Special Account (SA) and Medisave. The base interest rate for your OA is 2.5%, and 4% for the SA and Medisave each. On top of that, you are entitled to an additional 1% interest for the first S$60,000 in your entire CPF account (with up to S$20,000 from the OA).

Which Account Can I Buy Property With?

You can only use your OA savings to buy a property. You can make the following property-related payments from your OA:

1. To pay the down payment of your flat;

2. To repay the housing loan taken for the purchase of your HDB flat or private property;

3. To pay for the legal fees, stamp duty, transfer fees and other related costs incurred in relation to the housing purchase; and

4. To repay a housing loan taken for the purchase of land and/or for construction of a house on that land (for private property).

Can I Buy Stocks With My CPF?

The answer is “Yes, but…”.

CPF does allow you to use your OA savings for investment in the stock market. However, you must be at least 18 years of age and not be an undischarged bankrupt. You must also have more than S$20,000 in your OA.

Moreover, you are not allowed to invest 100% of your OA savings in the stock market. CPF uses two types of method to calculate how much you are allowed to invest. It will then take the lower of the two amounts.

The first method of calculation is to take 35% of your OA investible savings. The second method is to take the remainder of the OA savings after taking out the minimal S$20,000 balance.

Foolish Summary

The CPF is there to ensure that all of us have a financial safety net to fall back on. That is why it is designed to be conservative. However, it is also a great tool to help us buy our first home or invest in the stock market for our retirement.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.