This article was first published on 5 November 2015 and updated to include the latest information.
Welcoming your child into this world is one 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 hovering at 1.2, 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 or UOB. Parents can choose to save money in the CDA account 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 CDA can be use for various child-related expenses. Here are 5 things we think you should already be doing with your Child’s CDA.
#1 Get The Government’s Dollar-For-Dollar Match
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 and 2nd child: Dollar-for-dollar matching capped at $3,000 per child
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
This dollar-for-dollar match for the child’s CDA remains till he or she turns 12. So, parents can make regular contributions to the child’s CDA whenever funds are running low and to 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.
#2 Pay For MediSave-Approved Integrated Shield Plan
We encourage parents to purchase a private integrated shield plan for their child 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 the in the Medisave account as well, which is what we believe most parents are currently doing.
However, 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%. This in addition to the fact that 50% of the money used from the CDA is likely to have been from the government anyway.
Which makes more financial sense? We will let you mull over it.
Read Also: Types Of Insurance To Buy For Your Children
#3 Childcare Centres And Kindergartens
The cost of pre-school education in Singapore is not cheap. That being said, parents can tap on the CDA funds to help pay for school fees.
Similar to paying for insurance, it makes more financial sense to top-up the CDA account, get the government’s dollar-for-dollar match, and then use it to pay for childcare or kindergarten fee.
Do note that the CDA funds can only be used at approved institutions.
#4 Pay For Child Medical-Related Expenses
Child medical-related expenses may also be paid out of his or her 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.
#5 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 CDA funds 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.
What Happens To Unused Funds After The Age of 12
If you are not able to expend all the funds in the 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 fear having a balance.