Power of compounding your child’s SA from young

All Singapore Citizen newborns born on or after 1 January 2015 qualify for the enhanced $4,000 MediSave Grant for Newborns. This means that each Newborn kick-start their lives on this world with $0 in their Ordinary Account (OA) and Special Account (SA), and $4,000 in their MediSave Account (MA). Wow! This is a great start in an account that earns 4% interest annually. In addition, the first $60,000 of combined balances (with up to $20,000 from the OA) earns an extra 1% interest.

Previously, I have mentioned about leaving a legacy for my child. Part of my plans is to use CPF as a tool to fulfill this goal. Some might ask me. Why not top up my own CPF accounts instead for my retirement or leave the CPF monies as a bequest when I am gone one day? Well, there are many ways to leave a legacy for your loved ones. I have also considered an allocation of cash and assets (stocks, gold, insurance etc) for my bequest. However, leaving it as a bequest via CPF would also mean that the next generation would not be able to easily misuse this money early in life without understanding hard work.

Logically, the most efficient way of making the monies work the hardest is to throw in $60,000 to your child’s SA from the start to earn 5% (including the extra 1%) interest from the start. As a middle-income salaried worker, I admittedly do not have the capability. However, what if I start small?

If I top up just a one-time $100 at age zero, at 4% annual compounding interest, this will snowball to $865 at age 55. At 5% annual compounding interest, it becomes $1,464.

I began on a small monthly mission of topping up $100. Notice the date of 01 Sep? I missed topping up on the last day of August due to some miscalculation. So moral of the story is not to wait till the last day to top up! Thus far, the true start to this mission is from Sep 2019 and I shall keep track of this growth as much as possible.

Topping up $100 monthly translate to $1,200 annually. If this keeps out, a capital outlay of $30,000 over 25 years will become $60,136 whereby the first $60,000 will earn the maximum 5% interest. Let us see where this will take us in the future.

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