Growing your child’s savings
If you’ve only got a minute:
- Make use of government schemes such as Child Development Account and Central Provident Fund to provide your child with a financial head start.
- Investing your child’s Ang Bao money is better than saving them in a piggybank.
- Start saving for your child’s university education from the moment they are born.
Raising a child, while fulfilling, can be an expensive affair. In most parts of the world, education bills could form a significant portion of the cost of bringing up a child. In Singapore, most children go through the public education system and the school fees up to Junior College is relatively affordable. While most children spend their time playing at the playground or studying for their next exam, they are likely not worrying about how they are going to pay for their tertiary education fees.
However, most parents understand that university tuition fees demand a large sum of money. It is best to start saving early.
Your children may not be working while they are studying but they will be able to accumulate some wealth over the years with their Ang Bao money, cash gifts from relatives and savings from their allowances. Rather than simply saving the money in a piggy bank, the money your child has set aside can be stashed elsewhere to earn better returns.
Here are some ways you can grow your child’s savings!
Maximise the Child Development Account (CDA) and Baby Bonus
2 months before the estimated delivery date of your child, you can submit an application for your child to join the Baby Bonus Scheme which comprises a cash gift.
There is a total cash gift of S$8,000 each for your 1st and 2nd birth and S$10,000 each for your 3rd and subsequent birth. It will be disbursed to you over 5 payments within 18 months from the birth of your child.
Opening a CDA – a bank account that’s tied to the birth of your baby – with one of the three local banks will allow you to enjoy the CDA First Step Grant of S$3,000 from the government which is automatically credited after CDA opening.
In addition, you will receive a dollar-for-dollar Government co-matching for each dollar you deposit in the CDA, up to the co-matching caps shown below. To maximise the grants given by the Government, you should top up your child’s CDA account up to these co-matching caps.
Maximum Government co-matching
|1st Child||Up to S$3,000|
|2nd Child||Up to S$6,000|
|3rd and 4th Child||Up to S$9,000|
|5th Child and higher||Up to S$15,000|
You can use the CDA monies to pay for educational and healthcare expenses for your child at Baby Bonus Approved Institutions (AIs).
Post-Secondary Education Account (PSEA)
Unused CDA savings are transferred to PSEA in the year when your child turns 13. In addition, any unused Edusave funds would also be transferred to the PSEA when your child turns 17. The PSEA balance earns interest that is pegged to the CPF Ordinary Account (CPF-OA) which is currently 2.5% per annum.
If you have not saved up to the CDA contribution cap, you can continue to contribute to your child’s PSEA and receive the government’s matching grant until the contribution cap is reached or when your child turns 18 years old, whichever is earlier.
The PSEA can be used to pay for account holder's or their siblings' approved institutions and programmes which include special education schools, ITEs, Polytechnics and Universities. It can also be used to repay government education loans and financial schemes.
In the year that your child turns 31, any unused PSEA savings will be transferred to his or her CPF-OA.
Open a savings account
It is a good start to teach your children about the benefits of saving and the power of compound interest through a savings account. Make it a regular affair to visit a bank and deposit the savings and Ang Bao money your child has collected. This helps to create financial awareness and cultivate a saving mentality. With digital banking, it is easy to log in to show your child how their savings have grown over time.
You can get started with POSB My Account, a deposit account that grows with your child. With the POSB Smart Buddy programme expanding to all primary and secondary schools by 2025, you will find it useful to link the account with your child’s Smart Buddy card/watch. This will allow you to instantly transfer allowance, manage your child’s finances and let your child develop a habit of saving money. As your child and banking needs grow, they will have the option to convert My Account to a Multiplier Account, that earns up to 3% p.a. in interest.
Top up Central Provident Fund Special Account (CPF-SA)
Parents can also consider topping up their children’s CPF SA with their Ang Bao money to provide them a head start in their retirement plan. The first S$60,000 of the combined CPF balances enjoys up to 5% annual interest. As the money cannot be withdrawn till your child is 55, he/she can leverage the long time horizon and take advantage of the power of compounding.
If a CPF member is to make a cash top-up of S$500 to his SA every January for 20 years, he will have about S$15,500 in his SA after 20 years. This is based on 4% interest per year.
Apply for the Singapore Savings Bonds (SSB)
The SSB is a 10-year government bond with relatively low risk. If you are looking to build your child’s savings for their university education fees, the SSB is a good place to store their current savings as it provides higher interest rates than a savings account and being backed by the Singapore Government there is a very low chance of capital loss.
The SSB also has an added benefit of being flexible as you can redeem the bond at any point in the 10-year duration and you will be paid back the principal and any accrued interest in the following month. You can also start with as little as S$500 which makes it accessible to most.
Help your child to invest
You can choose to set aside a portion of your child’s Ang Bao collection for investments, such as in a diversified portfolio of unit trusts or Exchange-traded funds (ETFs). If you are willing to take higher risk, this could allow your child’s savings to obtain potentially higher returns.
One of the best ways to get started is DBS Bank’s digiPortfolio which offers ready-made diversified investment portfolios that are managed by the DBS Investment Team to grow your wealth. You can easily start with just S$/US$1,000.
Another option is the DBS Invest Saver which offers a simple way to start investing through a Regular Saving Plan. With options of 4 Exchange Traded Funds (ETFs) and an extensive list of unit trusts, you have the flexibility to pick one that is suitable for your investment needs and risk profile. With a low minimum investment amount of S$100 a month, you can encourage your children to save more and invest in these funds on their own when they are older. And while investing, don’t forget to use the opportunity and share with your children about the benefits of investing and financial planning!
Some parents prefer to park the savings in an endowment (savings) insurance policy which is earmarked to fund their children’s varsity education. Endowment plans allow you to save in a disciplined manner while providing some guaranteed returns.
With a myriad of choices to help your child on his financial journey and grow his/her savings, now is the best time to get started!
Ready to start?
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.