What is CPF Accrued Interest actually and how can it curtail your HDB cash proceeds?
In my years of experience meeting up numerous parties and customizing their financial plans, most of them got no clue on the above topic I am about to share. Many are shocked and surprised when they realized the ‘opportunity costs’ they stand to lose out if they did not start to plan and take action.
To put into better perspective, let me share something close to my heart. My maternal auntie’s classic case.
She & her spouse bought their resale HDB flat back in 2000 and it was fully paid up using their CPF savings & HDB grants available at the time. They spent a total of $400,000 at one go thinking that they don’t have to stress on their instalments and remain debt-free from thereon.
17 years today, they are thinking of downsizing their flat as only two of them are staying there as both their children are doing well and married. This is very common among Singaporeans today as the space gets underutilized and thoughts of cashing out to a smaller unit is very much a feasible option. But to their shock, they have totally no cash proceeds if they sell their flat. What happened was that CPF Accrued Interest kicks in from the very day they paid their flat and it has been compounding for a good 17 years till date.
How much do you think their CPF Accrued Interest was? A whopping $208,000!
CPF 2.5% Interest Calculations(17 years)
| Year | Periods | Starting Value | Interest | Interest Earned | End Value |
| 1 | 1 | 400,000.00 | 2.5 % | 10,000.00 | 410,000.00 |
| 2 | 1 | 410,000.00 | 2.5 % | 10,250.00 | 420,250.00 |
| 3 | 1 | 420,250.00 | 2.5 % | 10,506.25 | 430,756.25 |
| 4 | 1 | 430,756.25 | 2.5 % | 10,768.91 | 441,525.16 |
| 5 | 1 | 441,525.16 | 2.5 % | 11,038.13 | 452,563.29 |
| 6 | 1 | 452,563.29 | 2.5 % | 11,314.08 | 463,877.37 |
| 7 | 1 | 463,877.37 | 2.5 % | 11,596.93 | 475,474.30 |
| 8 | 1 | 475,474.30 | 2.5 % | 11,886.86 | 487,361.16 |
| 9 | 1 | 487,361.16 | 2.5 % | 12,184.03 | 499,545.19 |
| 10 | 1 | 499,545.19 | 2.5 % | 12,488.63 | 512,033.82 |
| 11 | 1 | 512,033.82 | 2.5 % | 12,800.85 | 524,834.66 |
| 12 | 1 | 524,834.66 | 2.5 % | 13,120.87 | 537,955.53 |
| 13 | 1 | 537,955.53 | 2.5 % | 13,448.89 | 551,404.42 |
| 14 | 1 | 551,404.42 | 2.5 % | 13,785.11 | 565,189.53 |
| 15 | 1 | 565,189.53 | 2.5 % | 14,129.74 | 579,319.27 |
| 16 | 1 | 579,319.27 | 2.5 % | 14,482.98 | 593,802.25 |
| 17 | 1 | 593,802.25 | 2.5 % | 14,845.06 | 608,647.30 |
A total of $608,647 needs to be refunded back to their CPF Ordinary Account upon the sale of their flat. What made it worst was that their HDB flat did not appreciate as much as they thought it would be. Today’s market valuation was only $550,000. In short, there is a shortfall of $58,000 “lost opportunity” in cash proceeds. Basically no cash proceeds for selling a property after staying 17 years. This is term as “Negative Sale”
Some may argue that the monies still go back to their CPF. Yes in a way but isn’t it always better to have money back to your CPF and also a healthy sum of cash on hand for rainy days or renovation for the next house?
This is indeed a painful experience for them as they never thought of what the CPF Accrued Interest can affect their potential sale in future. They were not aware and on hindsight, leveraging on financial loan and not dumping lump sum of their CPF savings at one go could have been the more ideal option then.
Assuming if they have kept all $400,000 in their CPF savings earning 2.5% interest per year could have yielded them an extra revenue of $208,000 given by the government after 17 years! Better than any plans from the bank.
Doesn’t this sounds a much better plan to grow your savings instead of having no cash proceeds when you sell your house? CPF scheme is good retirement plan for Singaporeans but only if you use it wisely to your advantage when it comes to property purchase.
Are you already in this situation and what can you do about it? Or are you about to fall into this situation and what can you do to avoid it?
Find out more on my free, non-obligatory 1-1 sharing session today!