If you’re a parent who’s reeling at the price of childcare and later, tuition, you need all the help you can get. Recently, it was announced that DBS, UOB and the existing OCBC are going to be administering the Child Development Accounts (CDA), taking over from Standard Chartered. Of course, all that is meaningless to you if you have no idea what you can use the CDA for in the first place.
Here’s a rundown of how you can get free money from the government thanks to the CDA and what you can use it for.
Double your savings for your child with the baby bonus
In order to receive the famous Baby Bonus, you will need to open a CDA. Basically, any money that you save up for your child and deposit in the CDA will be matched one-for-one, up to a maximum that is determined according to how many children you have as follows:
- First child: $6,000
- Second child: $6,000
- Third child: $12,000
- Fourth child: $12,000
- Fifth child and above: $18,000
That means if you deposit $1,000 into the CDA, the government will give you an additional $1,000 the next month. You get to keep your CDA account open until your child hits the age of 12, so you’ve got quite a bit of time to save up the amount necessary to bag you the entire bonus.
Grow your savings with the Child Development Account.
Kickstart your savings with the CDA Starter Scheme
If you have a monthly household income of under $4,500, definitely sign up for the CDA Starter Scheme as there’s more free money coming your way. If you deposit at least $50 into your account, over a period of 6 months the bank (currently available at OCBC) will contribute double that amount. The government will then match the total amount.
Here’s how it works. You deposit $50. The bank gives you $100 in return. Altogether you have $150 now. The government then matches that by giving you an additional $150. Voila, your $50 deposit has ballooned to $300.
Enjoy a decent interest rate
The main reason most people open a CDA is to take advantage of the baby bonus. But the CDAs at the various banks also offer fairly decent interest rates.
OCBC CDA offers 2% per annum on the first $36,000, after which the balance yields 0.05% per annum, making it the winner in this category.
Until 31 December 2015, UOB CDA is offering bonus interest that gets you 1.7% on your first $20,000 and 2% interest on the remaining balance above $20,000.
POSB CDA offers a 2% interest rate, there is a cap, and when you exceed it you get only 0.05% per annum on the remaining balance above the maximum amount. The caps are as follows:
- First and second child: $12,000
- Third and fourth child: $24,000
- Fifth child: $36,000
When you consider the fact that you’re getting that interest not only on your own deposits but also on all the money the government gives you to match, it’s a pretty good deal.
With the Child Development Account, this money can be used at selected education institutions, health care services, optical needs and others.
Spending the money in the CDA account on childcare, healthcare and early childhood services
You might have amassed a small fortune in your CDA, but that doesn’t mean you can withdraw the entire amount and try to triple it at the MBS casino. The money in your CDA is supposed to be spent on your child, and can only be paid out to the following service providers:
- Child care centres
- Kindergartens and special education schools registered with the MOE or CPE
- Early intervention programmes registered with the NCSS or Centre for Enabled Living
- Healthcare institutions
- Assistive technology device providers (eg. for hearing aids)
- Optical shops
- Pharmacies
Basically, this means you get to use the money in your CDA account for childcare, early childhood or other special needs programmes, as well as healthcare for your child. And we all know how expensive all these things can get.
Note that all institutions must be registered with the MCYS under the Baby Bonus Scheme. So before you use any of their services, make sure you check that they’re an approved institution or you won’t be able to use money from your CDA to pay.
What have you used your Child Development Account for? Tell us in the comments!
This article was first published on Moneysmart.