6 Methods for Singapore Parents To Maximise The Child Development Account (CDA)
Welcoming your son or daughter into this world is among the greatest joys a parent or gaurdian may go through. Celebrating alongside you is the one and only your government in Singapore. And with the country's fertility rate at 1.10 (as of 2021), it is easy to see why.
The Government welcomes your child with a Baby Bonus cash gift of $8,000 (payable during a period of 18 months). This money is given to help lighten the financial costs of raising your son or daughter.
In addition to the infant bonus cash gift, your son or daughter will also be eligible for a a young child Development Account (CDA), which you'll choose to open with one of the neighborhood banks – OCBC, DBS/POSB or UOB. Parents can pick to save cash in the Child Development Account (CDA) until the youngster turns 12.
In Budget 2021, the federal government also introduced the CDA Initial step Grant that provides an automatic contribution of $3,000 to a child's CDA.
The Child Development Account (CDA) can be used for various child-related expenses. Here are 6 things we believe you need to be doing with your Child's CDA.
#1 Obtain the Government's Dollar-For-Dollar Matching
On the surface of the Initial step Grant of $3,000 for each child, the government will match any savings designed to the child's CDA on a dollar-for-dollar basis, limited to the next:
1st child: Dollar-for-dollar matching limited to $3,000 per child
2nd child: Dollar-for-dollar matching capped at $6,000 per child
3rd and 4th child: Dollar-for-dollar matching limited to $9,000 per child
5th child and beyond: Dollar-for-dollar matching capped at $15,000 per child
This dollar-for-dollar match for the child's CDA remains until she or he turns 12. So, parents can make regular contributions to the child's CDA whenever funds are running low and obtain the federal government to help match it. There is no need that you should rush to deposit all-at-once within the CDA's to get the entire dollar-for-dollar amount (even though there are good financial causes of doing it)
Do note that for Singapore Citizen children who are born between 17 August 2008 to 23 March 2021, the dollar-for-dollar matching in the government is higher by $3,000. That's because children born 23 March 2021 and earlier don't benefit from the initial $3,000 CDA First Step.
Pro tip: You can check the Baby Bonus website to learn how much you have led to your Child’s CDA. This will prevent you from overcontributing beyond what you will achieve with a home dollar-to-dollar matching.
#2 Open A CDA With A Bank Which Gives The Help you Want
You can open your child's CDA with one of the three local banks – OCBC, DBS/POSB, or UOB. You can do this entirely online. Upon opening the account, the federal government will credit an initial Initial step Grant of $3,000 (for those born after 23 March 2021).
While the functionality of theChild Development Account (CDA) is similar over the three local banks, they are doing offer slight variations when it comes to advantages to account holders. For example, both OCBC and DBS/POSB have partnerships that provide discounts or perks with selected merchants.
Interest rates may vary as well. Currently, interest rates are as follows (as of 1 March 2021)
First $25,000 – 1.00%
Next $25,000 – 2.00%
Above $50,000 – 0.05%
First $10,000 – 1.00%
Next $40,000 – 2.00%
Above $50,000 – 0.05%
First $10,000 – 0.60%
Next $10,000 – 0.80%
Above $20,000 – 2.00%
Do note that the interest rates and merchant partnerships aren't fixed. So you should not be surprised if the benefits change through the years. The good thing is when you're unhappy with your CDA bank, you can submit an application to the MSF Baby Bonus website to alter the bank.
Pro tip: Choose a bank that you curently have internet banking with. This will give you the ease of accessing and monitoring the account utilizing the same online banking login, rather than needing to make an application for another internet banking login to gain access to the account.
#3 Purchase MediSave-Approved Integrated Shield Plan
We encourage parents to buy a private integrated shield arrange for their kids while they are still young. At a young age, children are not as likely to have pre-existing health problems, and hence, could obtain full dental coverage plans without any exclusions.
A private integrated shield plan helps to ensure that any future conditions that develop would continue to be taught in insurance company for as long as the insurance policy is within effect.
Rather than fork out cash or use your Medisave account to pay for the insurance coverage premiums, you should use your child's CDA account to pay instead. Due to the dollar-for-dollar match received from the federal government, you would actually be paying only 50% from the premiums.
To clarify, your child will receive a Medisave Account with $4,000 from the government automatically upon registration of birth. You could use in the Medisave account too, that is what we believe most parents are presently doing.
Pro tip: It's worth noting that your child's Medisave Account will earn a pursuit of 5% per year (since she or he would have under $60,000), while profit the CDA would only earn up to 2%. However, MediSave funds tend to have limited usage, while CDA could be allocated to more things. Making more financial sense? We will allow you to mull over it.
#4 Childcare Centres And Kindergartens
The price of pre-school education in Singapore is not cheap. That being said, parents can tap on the Child Development Account (CDA) funds to assist purchase school fees.
Similar to spending money on insurance, it makes more financial sense to top-up the kid Development Account (CDA), obtain the government's dollar-for-dollar matching, after which use it to pay for childcare or kindergarten fee. Since school fees aren't cheap, your funds will typically deplete quickly.
Do observe that the kid Development Account (CDA) funds are only able to be applied out approved institutions.
Pro Tip: Since most pre-schools only allow school fees to become paid using cash, cheque, GIRO or bank transfer, which don't earn you any perks, it may be easier to use your CDA funds to pay for pre-school education, and also to purchase other child-related expenses using your charge cards, which earns you cashback or miles.
#5 Purchase Child Medical-Related Expenses
Child medical-related expenses may also be paid out of his or her Child Development Account (CDA). If you have already bought full hospitalisation coverage for the child, then you definitely wouldn't have to worry about that. However, other medical expenses you may still incur would include child vaccinations and outpatient treatments.
Some of these treatments may also be payable via your son or daughter's Medisave Account. Parents will have to determine if they rather use their child's CDA or their Medisave Account, bearing in mind that the Medisave account earns more in interests.
Pro Tip: Most hospitals, polyclinics and child specialist private clinics will help you to spend the money for bill using your CDA. So make sure to bring your CDA ATM card whenever you bring your son or daughter for any visit.
#6 Purchase Vitamins, Health Supplements And Optical Appliances
Aside from using the funds to cover insurance, education and medical expenses, parents can also use Child Development Account (CDA) funds to purchase everyday items for example vitamins and natural supplements for his or her children. Funds can also be used at optical shops to buy spectacles or contact lenses too.
Be certain to the reason is that are only able to be applied out one of the approved institutions.
Pro Tip: In general, because you can pay for most of these items with your charge cards, it would be a much better idea to maintain your CDA savings for other child expenses such as pre-school education, where you can't use your credit cards. By doing this, you get additional benefits for example cashback and miles.
What Transpires with Unused Funds After The Age of 12
If you aren't in a position to expend all the funds in the Child Development Account (CDA) by the time your child turns 13, the remaining balance would automatically be used in your child's Post-Secondary Education Account. So there isn't any need to worry that you'd struggle to finish using up the funds by age 12.
Pro Tip: Because you can earn 2% p.a. interest in your child's CDA, inclusive of the top-up provided by the federal government, it seems sensible to top-up your son or daughter's CDA as soon as possible.