Parenting 101: What Is a Child Development Account, and How To Maximise It for Your Kid

This was originally posted on Planner Bee.

Welcoming a new child into the world is one of the greatest joys a parent can experience. To support couples in this new phase of life, the Singapore government launched the Baby Bonus Scheme, formerly known as the Child Development Co-Savings Scheme, on 1 April 2001, aimed at helping to lighten the financial costs of raising children.

The Baby Bonus Scheme includes a Baby Bonus Cash Gift (BBCG) and a Child Development Account (CDA) – a special co-savings scheme for your newborn. In this piece, we will delve more into the CDA to understand why it’s beneficial for parents to save in it.

What exactly is the Child Development Account?

The CDA, which can be created when a child is born, comprises two components: the First Step Grant and the government’s co-matching of parents’ savings.

This special savings account can be used for approved areas of child-raising expenditure, including healthcare and preschool fees. Parents can put savings into the account until a child turns 12.

CDA eligibility

To qualify for CDA, the child must be a Singapore Citizen. Either or both parents must also hold citizenship. Children of unwed parents may be eligible for CDA benefits if they are born on or after 1 September 2016. You can check if your child is eligible for the Baby Bonus Scheme here.

To be eligible for the CDA First Step Grant, the child must be born on or after 24 March 2016, be a Singapore Citizen or become a citizen before 12 years old.

Approved use of CDA

Parents can save into and use the CDA until December 31 of the year their child turns 12 years old. CDA funds can be used at Baby Bonus Approved Institutions (AIs) to pay for the following expenses of their child:

• Fees for registered childcare centres, kindergartens, special education schools and early intervention programmes
• Medical expenses at healthcare institutions such as hospitals and General Practitioner clinics
• Premiums for MediShield Life or MediSave-approved private integrated plans
• Assistive technology devices
• Eye-related products and services at optical shops
• Approved healthcare items at pharmacies

For MediShield Life or MediSave-approved private integrated policies, if the premium is paid by MediSave, there must be a cash top-up to MediSave before the CDA can be used to reimburse the parent.

For a full list of approved AIs, the Ministry of Social and Family Development (MSF) has created a dedicated page for parents to search conveniently.

CDA First Step Grant

The first part of the CDA is the CDA First Step Grant. To help cushion the increasing cost of living, the government has made various tweaks over the years to the CDA First Step Grant, increasing payouts for eligible newborns.

For eligible children born on or after 14 February 2023, an enhanced CDA First Step Grant of S$5,000 will be deposited into the child’s CDA without requiring the parents to first deposit some savings into it.

For children born on or after 24 March 2016 to 13 February 2023, they will receive S$3,000 for their CDA First Step Grant.

For children born before 24 March 2016, there is no CDA First Step Grant available for them. However, they can still receive the government’s dollar-for-dollar co-matching contribution.

Dollar-for-dollar government co-matching contribution

On top of the First Step Grant, the Singapore government also offers a dollar-for-dollar co-matching contribution for parents who save into their child’s CDA.

The government has increased the amount of co-matching cap by S$1,000 for the first and second child, up to S$4,000 and S$7,000 respectively, born on and after 14 February 2023.

The dollar-for-dollar co-matching contribution is valid until the child turns 12, or when it hits the cap. Parents do not have to deposit the full amount at a go.

For children born between 17 August 2008 and 23 March 2016, the government’s dollar-for-dollar matching is higher by S$3,000 for each child as they did not receive the initial S$3,000 CDA First Step Grant.

Which bank should you open your CDA with?

You can open a CDA for your child at one of these three local banks — DBS/POSB, UOB, or OCBC. Your child will receive the CDA First Step Grant and the government’s dollar-for-dollar matching for the savings regardless of which one you choose in the end.

However, there are slight variations with regard to the benefits the account holders receive, along with differences in interest rates.

Benefits and interest rates for CDAs can change over time. Should you be unsatisfied with the new changes, you can submit an application on the Baby Bonus website to change the account.

What happens to leftover funds when your child turns 13?

If there are leftover funds in the CDA when your child turns 13, the remaining amount will automatically be transferred to your child’s Post-Secondary Education Account (PSEA), so there is no need to worry if you aren’t able to use up all the funds by then.

With CDA savings receiving up to 2.4% on interest – a figure that is much higher than the regular bank’s 0.05% interest rate – it is a good idea for parents to save into their child’s account and use it to pay for eligible uses.

If you wish to know more about the MediSave-approved private integrated plans that you can use CDA funds for, feel free to contact the Planner Bee team at [email protected].