Should I transfer my CPF-OA to CPF-SA?

Something that is frequently talked about on CPF is whether we should make the transfer from CPF-OA to CPF-SA. The decision of transferring is not a clear cut one, and depends on each person's financial situation. Hence, I hope you read this article in an objective manner, and at the end of the day, assess your own circumstances to make the best financial decision.

MAKING YOUR MONEY WORK HARDER

The process of transferring your CPF-OA funds into your CPF-SA is relatively straight-forward and can be done on the CPF website. The first and most obvious benefit of making that transfer is to take advantage of the additional interest provided in CPF-SA. The CPF-OA only gives you 2.5% interest while your CPF-SA gives you 4% interest. Again, I am going to highlight the importance on compounding interest, especially over a long time span.

Assuming you started out with $100,000 at the age of 30 years old, The difference between what you would have in your CPF-SA and CPF-OA at 60 years old would be $114,583, more than your principle amount at 30 years old. While seemingly minute the difference of 1.5% between the accounts, it amounts to a significant sum over many years.

Of course, this can only be seen if you start early, which is why I would advocate that if you have sufficient cash flow, to make that transfer into your CPF-SA to allow the magic of compounding interest to happen.

ADDTIONAL 1% INTEREST

CPF pays all members an additional 1% in interest to the first $60,000 of your combined balance, with up to $20,000 from your CPF-OA. What that means is, if you had $40,000 in your CPF-OA, only $20,000 of your CPF-OA will receive the addtional 1% in interest. All things equal, it would make sense to initiate the transfer to your CPF-SA to maximise the additional 1% interest.

This would be especially applicable when you are just starting your working life, and want to provide your CPF with a boost. The younger you do it, the greater benefits you will reap.

WHAT IS THE DOWNSIDE OF TRANSFERRING TO MY CPF-SA?

Of course, with any decisions that you make in life, there are always pros and cons. The downside to transferring your monies to your CPF-SA is the lost of flexibility that you have with your CPF. Remember, the transfer is one way and non-reversible. So, if you are about to purchase your property in the coming years, you have to consider very carefully if you need the funds that you are transferring into your CPF-SA. Once you have worked that out, can you decide if the transfer is appropriate for you.

Bear in mind that life is very unpredictable, and it would be wise to be more conservative by having excess funds in your CPF-OA, than needing the the funds which are stuck inside your CPF-SA. Think about whether your parents are covered medically. Think about whether your parents are financially able to support themselves during their retirement. Think about the possibility of you losing your job. All these factors are important to consider, as by transferring your CPF-OA to your CPF-SA, you are essentially limiting yourself from using CPF to finance your home, and drawing more cash flow in order to do so.

CONCLUDING THOUGHTS

As I mentioned at the start of this article, there are a variety of factors to consider before you decide to make the transfer from your CPF-OA to your CPF-SA. What makes sense for someone may not make sense in your circumstance. Really, you are weighing the flexibility that your CPF-OA offers to the higher yielding, inflexible CPF-SA. There are temptations to grow your CPF monies as quickly as possible by making the transfer, but the bottom line is to be rational and make the most informed choice.