Asked by Anonymous

Which is a better option? Using cash to pay for BTO flat or use CPF?

I'm leaning towards cash as CPF can built more interest than in the bank

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    • Jason Sin
      Jason Sin
      329 Answers, 420 Upvotes
      Answered on 30 Nov 2018

      Using cash to pay is a better option. The interest of your fixed deposit is lower than the interest of your CPF OA. Hence it makes sense to use cash instead of CPF OA to pay for BTO.

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    • Yixiong Chang
      Yixiong Chang

      Top Contributor (Dec)

      170 Answers, 225 Upvotes
      Answered on 05 Nov 2018

      I depends what would you do with your cash, if you going to pay with CPF OA. And what you going to do with the CPF OA money instead.

      Most people prefer to not pay cash, and only pay using CPF OA is possible. If you elect to pay just using cash, would cashflow be an issue for you? Moreover if u just let the CPF OA money stay in it, it is earning only 2.5%. You can choose to transfer your OA money to SA for 4% interest, if retirement planning is your goal.

      Another way, you could use both your OA and additional cash to faster pay down the loan. That will save you interest payment and have a peace of mind.

      A better way might be to pay using your CPF OA for your housing. But topup using cash to your special account.

      You will earned a guaranteed rate of 4%. For the first $60k in your CPF combined balance (with only up to $20k max from OA), the monies will earn an extra 1%. I assume you are fairly young, u will not be near the limit yet. Thus it is worthwhile to topup to earn effective 5% return. Risk-free, regardless of market conditions.

      In additional u will receive tax relief for the topped up amount. Eg, your taxable income is $40k, for every dollar u earn above 40k is taxed at 7%. Therefore, if u topped up $1000 into your special account, u get $1000 tax relief, u saved 7% of $1000 = $70 tax money. Effectively have gotten 7% return on your money, in additional u will earn 4%-5% interest yearly guaranteed. If you are earning more than $80k, u will be in the 11.5% tax bracket, thus saving even more.

      Chat with me if u would like to discuss more.

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