What is the difference between topping up directly to my SA vs transferring OA to SA? How will this affect me eventually if my SA is still increasing by 4% either way?

Hi there,

You have raised very valid questions, which i will address one at a time.

1. Difference between topping up SA and transferring OA.

Topping up your SA with cash, constitutes as RSTU. So can top up your SA 7K annually, which is subjected to tax reliefs. For transfer of OA to SA, you are not entitled to tax reliefs, and the move is irreversible until after 55.

2. How will this affect you?

By topping up your SA with your cash on hand, you are using your current day liquidity to grow at a guaranteed 4% p.a. If you move your funds from OA to SA, you will accelerate your SA growth, as there will be a 1.5% increase in your interest rate.

Eventually, if you do the math, 7k annually for 15 years compunded at 4%, will result in 140k at the end of 15th year. If you add in your regular contribution from work, you are well on your way to a healthy retirement.

3. Using Cash on Hand vs CPF to Pay Mortgage

As it stands, the CPF monies you have paid today, and regularly, is subjected to accrued interest (AI). Meaning on sale, you are to return the principle loan amount, together with the interest compounded at 2.6%.

Using your cash to pay for your mortgage, will stop yourself for accumulating more AI for the payment for your house. On sale of your house, you will have more cash on hand, vs more returned to CPF.

Technically speaking, it doesnt matter all that much, because the only time you will need to do so, is if you sell your house. When you do sell your house to buy another, you are essentially channelling back the same amount to the new house. In a sense, you are paying yourself the interest so ensure that your CPF still continues to grow. Not unless you are in a scenario where you want to sell your house for liquidity, but on sale you are not able to do so, due to the amount owed to CPF.

Both methods you have mentioned are viable. However paying cash on hand for your mortgage, will reduce your yearly liquidity by 12k in your scenario. If you are comfortable doing so, its an explorable scenario. Doing so, you also can consider refinancing to a bank loan, so you pay a lower interest rate moving forward, and you pay more principle vs interest per month for your mortgage.

I hope i have managed to answer your question! Have a great day ahead! ​​​

One thing is that the amount that you withdrew from your OA for housing incurs accrued interest. You will have to pay back the accrued interest when you sell your property.

Meaning the cost of using your OA funds is the accrued interest rate of 2.5% p.a. This is in addition to the loan interest rate.

The other thing is at the current loan interest rates, the interest rate of a bank loan is probably lower than 2.5% p.a. Meaning it is relatively cheaper to use cash instead of OA funds.

Doing cash top ups to your SA qualifies for up to $7000 income tax relief.

For transferring OA to SA, it is taking advantage of the higher SA interest rate of 4% p.a. and allowing compounding effect over time.