Best Ways For Singapore Parents To Maximise The Child Development Account (CDA)

 Welcoming your child into this world is one of the greatest joys a parent can experience. Celebrating alongside you is none other than your government in Singapore. And with the country’s fertility rate at 1.10 (as of 2020), it is not difficult to see why.

The Government welcomes your child with a Baby Bonus cash gift of $8,000 (payable over a period of 18 months). This money is given to help lighten the financial costs of raising your child.

In addition to the baby bonus cash gift, your child will also qualify for a Child Development Account (CDA), which you can choose to open with one of the local banks – OCBC, DBS/POSB or UOB. Parents can choose to save money in the Child Development Account (CDA) until their child turns 12.

In Budget 2016, the government also introduced the CDA First Step Grant that provides an automatic contribution of $3,000 to a child’s CDA.

The Child Development Account (CDA) can be used for various child-related expenses. Here are 6 things we think you should already be doing with your Child’s CDA.

#1 Get The Government’s Dollar-For-Dollar Matching

On top of the First Step Grant of $3,000 for each child, the government will match any savings made to the child’s CDA on a dollar-for-dollar basis, capped at the following:

1st child: Dollar-for-dollar matching capped at $3,000 per child

2nd child: Dollar-for-dollar matching capped at $6,000 per child

Do note this is only applicable for children who are born, or have an estimated date of delivery, on or after 1 Jan 2021. If a child is born before 1 Jan 2021, the maximum Government co-matching is $3,000.

3rd and 4th child: Dollar-for-dollar matching capped at $9,000 per child

5th child and beyond: Dollar-for-dollar matching capped at $15,000 per child

Source

This dollar-for-dollar match for the child’s CDA remains until he or she turns 12. So, parents can make regular contributions to the child’s CDA whenever funds are running low and get the government to help match it. There is no need for you to rush to deposit all-at-once in the CDA’s to get the entire dollar-for-dollar amount (though there are good financial reasons for doing it)

Do note that for Singapore Citizen children who are born between 17 August 2008 to 23 March 2016, the dollar-for-dollar matching from the government is higher by $3,000. That’s because children born 23 March 2016 and earlier do not enjoy the initial $3,000 CDA First Step.

Pro tip: You can check the Baby Bonus website to find out how much you have contributed to your Child’s CDA. This will prevent you from overcontributing beyond what you will get from the dollar-to-dollar matching. 

#2 Open A CDA With A Bank Which Gives You The Benefit You Want

You can open your child’s CDA with one of the three local banks – OCBC, DBS/POSB, or UOB. This can be done entirely online. Upon opening the account, the government will credit an initial First Step Grant of $3,000 (for those born after 23 March 2016).

While the functionality of theChild Development Account (CDA) is similar across the three local banks, they do offer slight variations in terms of benefits to account holders. For example, both OCBC and DBS/POSB have partnerships that offer discounts or perks with selected merchants.

Interest rates may differ as well. Currently, interest rates are as follows (as of 1 March 2021)

UOB	First $25,000 – 1.00% Next $25,000 – 2.00% Above $50,000 – 0.05%
DBS/POSB	First $10,000 – 1.00% Next $40,000 – 2.00% Above $50,000 – 0.05%
OCBC	First $10,000 – 0.60% Next $10,000 – 0.80% Above $20,000 – 2.00%

Do note that the interest rates and merchant partnerships are not fixed. So you should not be surprised if the benefits change over the years. The good news is that if you are unhappy with your CDA bank, you can submit an application to the MSF Baby Bonus website to change the bank.

Pro tip: Choose a bank that you already have internet banking with. This will give you the convenience of accessing and monitoring the account using the same internet banking login, rather than having to apply for another internet banking login to access the account.

#3 Pay For MediSave-Approved Integrated Shield Plan

We encourage parents to purchase a private integrated shield plan for their children while they are still young. At a young age, children are less likely to have pre-existing health conditions, and hence, would be able to obtain full coverage with no exclusions.

A private integrated shield plan ensures that any future conditions that develop would continue to be covered by the insurance company for as long as the policy is in effect.

Rather than fork out cash or use your Medisave account to pay for the insurance premiums, you can use your child’s CDA account to pay instead. Because of the dollar-for-dollar match received from the government, you would actually be paying only 50% of the premiums.

To clarify, your child will receive a Medisave Account with $4,000 from the government automatically upon registration of birth. You could use in the Medisave account as well, which is what we believe most parents are currently doing.

Pro tip: It is worth noting that your child’s Medisave Account will earn an interest of 5% per annum (since he or she would have less than $60,000), while money in the CDA would only earn up to 2%. However, MediSave funds tend to have limited usage, while CDA can be spent on more things. Which makes more financial sense? We will let you mull over it.

#4 Childcare Centres And Kindergartens

The cost of pre-school education in Singapore is not cheap. That being said, parents can tap on the Child Development Account (CDA) funds to help pay for school fees.

Similar to paying for insurance, it makes more financial sense to top-up the Child Development Account (CDA), get the government’s dollar-for-dollar matching, and then use it to pay for childcare or kindergarten fee. Since school fees are not cheap, your funds will typically deplete very quickly.

Do note that the Child Development Account (CDA) funds can only be used at approved institutions.

Pro Tip: Since most pre-schools only allow school fees to be paid using cash, cheque, GIRO or bank transfer, which don’t earn you any perks, it may be better to use your CDA funds to pay for pre-school education, and to pay for other child-related expenses using your credit cards, which earns you cashback or miles.

#5 Pay For Child Medical-Related Expenses

Child medical-related expenses may also be paid out of his or her Child Development Account (CDA). If you have already bought full hospitalisation coverage for your child, then you wouldn’t have to worry about that. However, other medical expenses you may still incur would include child vaccinations and outpatient treatments.

Some of these treatments may also be payable via your child’s Medisave Account. Parents would need to decide if they rather use their child’s CDA or their Medisave Account, bearing in mind that the Medisave account earns more in interests.

Pro Tip: Most hospitals, polyclinics and child specialist private clinics will allow you to pay the bill using your CDA. So remember to bring your CDA ATM card whenever you bring your child for a visit.

#6 Pay For Vitamins, Health Supplements And Optical Appliances

Aside from using the funds to pay for insurance, education and medical expenses, parents can also use Child Development Account (CDA) funds to purchase everyday items such as vitamins and health supplements for their children. Funds can also be used at optical shops to buy spectacles or contact lenses as well.

Be sure to remember that these can only be used at one of the approved institutions.

Pro Tip: In general, because you can pay for most of these items with your credit cards, it would be a better idea to keep your CDA savings for other child expenses such as pre-school education, where you can’t use your credit cards. This way, you get additional benefits such as cashback and miles.

What Happens To Unused Funds After The Age of 12

If you are not able to expend all the funds in the Child Development Account (CDA) by the time your child turns 13, the remaining balance would automatically be transferred to your child’s Post-Secondary Education Account. So there is no need to worry that you would be unable to finish using up the funds by age 12.

Pro Tip: Because you can earn 2% p.a. interest on your child’s CDA, inclusive of the top-up given by the government, it makes sense to top-up your child’s CDA as early as possible.