The Central Provident Fund (CPF) was created to help Singaporeans save enough for retirement. Your wages are deposited into three accounts that make up your CPF: Ordinary Account (OA), Special Account (SA), and Retirement Account (RA).

One of these, the OA is the account that younger workers will become most familiar with, as it is more than just a simple savings account. Below, we explain explore the OA in detail and all the things you can do with it.

What is the Ordinary Account (OA)?

The Ordinary Account is considered to be a short-term savings account that can help Singaporeans pay for large expenses such as tuition and housing. Most of the wages made by younger workers (aged 35 and younger) will go into the Ordinary Account.

The Ordinary Account, along with your Special Account will make up the Retirement Account that will be created for you when you turn 55.

Ordinary Account interest rates

As with all CPF accounts, your Ordinary Account will accrue interest. The interest rate is the higher of either the minimum of 2.5 per cent per annum or the three-month average of major local bank's interest rates. Currently, you can earn up to 3.5 per cent on your Ordinary Account, which includes the extra 1per cent interest that accrues on the first S$20,000 in your OA.

Using your OA funds for HDB home purchases

You can use the money in your Ordinary account to help pay for new or resale HDB and DBSS (Design, Build and Sell Scheme) HDB flats. This includes using OA funds to help pay for the cost of the house, the down payment or mortgage payments , as well as miscellaneous fees such as stamp duty, legal costs and survey fees.

The amount of CPF savings you can take out to make a home purchase depends on how many properties you own and whether the property's lease can cover the youngest buyer to at least 95 years of age. For instance, if the youngest person using their CPF is 35, then the number of years remaining on the lease has to be at least 60.

Using your OA funds for private home purchases

Prospective home buyers looking to purchase or buy a private property can also use their OA to help finance either building or purchasing a new home. There are four ways you can use your CPF to pay for private property. The first and most simple way is to use it to pay the purchase price.

Alternatively, you can use the funds to pay for the mortgage or to repay housing loans (construction loan or mortgage loan). Lastly, you can also use it to pay for the stamp duty, legal costs, and other related sees.

You can use your CPF account to pay for any private property that has a lease of 20 years or less. However, you can not use CPF savings to pay for the land or construction of a house directly. Instead, you have to use your own funds or take out a loan first and then seek reimbursement for them later.

OA funds and the Home Protection Scheme

If you do use your OA funds to pay your mortgage, you will have to be insured under the Home Protection Scheme (HPS). The HPS is an insurance scheme that protects you and your family members against losing your HDB flat if you die, become ill or become permanently disabled.

You will be protected until you turn 65 or until you pay off your housing loan, whichever comes first. You can not apply for the HPS if you own an Executive Condominium or other private property.

You should apply for the HPS when you are applying to withdraw your CPF savings. The amount you choose to insure should at least be the proportion of the housing loan you are paying for with your OA funds, but you can choose to insure 100 per cent of your home loan.

The annual premium will depend on the outstanding house loan, loan repayment period, type of loan, age and gender and share of cover. You only need to pay the premium for 90per cent of your HPS cover period. You can apply to be exempted from the HPS if you already have a private insurance coverage that is enough to cover your outstanding house loan against death, terminal illness and total permanent disability (i.e. whole life or renewable term life policies).

For more information on the HPS here.

Exclusions to the OA Housing Purchase Scheme

You can not use your CPF for certain housing-related costs. These include booking or option fees to property developers or sellers, resale levies, construction or renovation costs and conservancy charges. Furthermore, you can not use your CPF to buy or build private housing if you are an undischarged bankrupt.

For a full list of exclusions, you can read the Terms and Conditions here.

Using your OA funds for education

You can also use your Ordinary Account to pay for you, your spouse's or your child's education. It is also possible to use your funds to pay for your sibling's or relative's subsidized tuition fees, although this is approved on a case-by-case basis. You can pay for multiple student's education.

You can withdraw up to 40 per cent of your accumulated OA savings or your remaining OA balance to pay up to 100 per cent of the tuition. Your accumulated OA savings is calculated as your current OA balance plus the OA funds you withdrew for education or housing. Your remaining OA balance is the balance left after setting aside that amount for housing or other schemes.

To be eligible, you, your spouse or child have to take full-time, subsidised, undergraduate courses at the institutions listed below:

• Nanyang Technological University (NTU)*
• National University of Singapore (NUS)
• Singapore Management University (SMU)
• Singapore Institute of Technology (SIT)*
• Singapore University of Technology and Design (SUTD)
• Singapore University of Social Sciences (SUSS)
• Nanyang Academy of Fine Arts (NAFA)*
• LASALLE College of the Arts (LAS)*
• *Along with approved degree programmes offered by the institutions partnered with overseas universities

Repaying your CPF after CPF education withdrawal

Since your OA account is supposed to be used as savings for your retirement, you will have to repay the money taken out to fund your or your family member's education. The student will have to start paying back the loan one year after graduation.\

You cannot use your own CPF savings to repay the CPF education loan. This is because CPF savings are used to for your retirement needs so taking money out to pay an existing loan would reduce the amount you would have saved for retirement.

The default rate will be the amount it would take for you to repay your loans in full in six years. The minimum amount you can pay per month is S$100. However, you can raise or lower your monthly payments to suit your financial needs. If you are thinking of lowering your monthly payments, you should note that you have 12 years to repay the loan.

If you still have an outstanding balance, you will have to pay the remaining balance in full. Thus, you should calculate out the amount you'll need to pay monthly in order to finish payments in the allotted time and avoid paying the minimum amount if you can.

Using your OA funds for investment

You can also use your Ordinary Account funds for investing as long as the investments are CPFIS-OA (Central Provident Fund Investment Scheme) approved. You can use OA funds to invest in products like bonds, unit trusts, annuities and Exchange Traded Funds (ETFs). You can also transfer your OA funds to higher interest CPF accounts such as your Special Account. However, you should note that this will be an irreversible transfer.

To be eligible to invest under the CPFIS-OA, you have to be at least 18 years old, have more than S$20,000 in your OA and not be an undischarged bankrupt. You can invest up to 35 per cent of your investible funds in stock, property bonds and corporate bonds and 10 per cent of your investible funds in gold. You also have to take the Self-Awareness Questionnaire.

While your OA can provide short-term benefits, think long-term

It's easy to think of your CPF OA as a savings account that you can pull from whenever large expenses like home purchases or tuition needs arise. However, the OA will end up making up part of your retirement account. Thus, pulling money out will come with caveats such as repayment.

Not only that, but you will have to repay the amount you took out of your CPF and any interest that it would have accrued had that money been sitting in your OA.

Thus, while taking money out of your OA can definitely be useful, it may be more prudent to take out only what you need and top up the rest in cash in the form of savings that are not tied to your retirement. This way, you can decrease the additional money you'll have to pay back that would come in the form of interest.

ALSO READ: CPF contributions in 2024: Everything you need to know

This article was first published in ValueChampion.