Strategies to minimise the blow of CPF accrued interest

CPF Accrued Interest is the rate being charged for using our CPF Ordinary Account (OA).

We will need to refund our CPF OA account after selling our house with the

1. Principal amount used;
2. Monthly instalments used for our mortgage payments;
3. Accrued interest compounded at 2.5% annually.

The longer you hold your flat, the more interest will be compounded. The accrued interest will continue to COMPOUND, even after you have paid your mortgage fully.

Here are some ways to lessen the CPF accrued interest:

Pay with cash

The most straightforward way to avoid the CPF accrued interest is by paying cash. By doing so, you are not using the CPF monies, hence, CPF will not be able to charge you.

You can consider making a partial capital repayment or monthly instalments in cash.

If you are on an HDB loan, you can apply online through the HDB website if you decide to pay part of the mortgage payment. The minimum amount for partial capital repayment is $5,000, with increments in multiples of $1,000. There is no charge for partial capital repayment.

If you are on a bank loan, it is best that you check with your bank. Often the case, there is a fee involved.

Alternatively, you can choose to purchase a less costly home which you can afford to pay monthly in cash.

Transferring the CPF Ordinary Account (OA) monies to your Special Account (SA)

This should be done before HDB can “wipe out” your CPF Ordinary (OA) for housing.

Please note that this action is irreversible. Once you decide to transfer your monies to your Special Account (SA), there is no way to undo it. SA account is reserved for your retirement. Hence, you are unable to withdraw the money until you are 55.

By transferring your OA monies to your SA, you would effectively get up to 5% interest annually.

Example: You have $100,000 in your CPF OA. If you decide to use the $100,000 to pay your house, you will have incurred additional $13,300 of accrued interest in 5 years.

But if you decide to transfer the $100,000 to the SA account instead, you will have gained $22,099 of interest.

The longer you keep your flat, the more CPF interest you will accrue. Vice versa, the longer you keep your CPF monies in your account, the more interest from CPF you will gain.

Find investment vehicles that earn more than the 2.5%

You can also consider investing your CPF through the CPF Investment Scheme or by purchasing a property.

While buying a property may require a huge outlay of cash, having the right money sense and due diligence can work to your benefit.

Whichever method you choose will depend on your current life and financial situation.

Feel free to contact me for a discussion and may you have a more informed plan.