Ways To Maximise Your Baby Bonus & CDA

With my baby coming out soon (in 2015), I am reading a bit on Baby Bonus Scheme & Child Development Account.

There are some things I learned about:

  • The Baby Bonus Scheme consists of two components – a cash gift and a Child Development Account.
  • The parents will receive the cash gift in 5 installments spanning over 18 months.
  • Parents have 12 years to contribute savings into the CDA. The government will contributes to the savings in the following month, matching dollar-for-dollar the amount saved in the CDA which will be capped depending on the child’s order of birth.

If you are just looking for a savings account with a higher interest rate for your child, using a CDA account actually makes some sense in this low-interest rate environment.

With banks like OCBC/POSB/UOB offering up to 2% p.a. for their CDA, it makes perfect sense to max up the dollar-for-dollar match into the account A.S.A.P if your financial status allows.

The interest of $100 per annum on a $10,000 deposit (POSB CDA) could allow parents to cover some of the baby’s injections and polyclinic visits costs.

You can always deposit more into CDA to let compounding interest do its job. The interest is $300 per annum on a $20,000 deposit (POSB CDA). This $300 could really cover some major expenses.

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.

5 Ways To Maximize The Child Development Account (CDA)

Out of the 5 ways listed in the article above, using the funds in CDA to pay for Medisave-approved Integrated Shield Plan is something I haven’t thought of. It makes sense actually.

Our child will receive a Medisave Account with $4,000 from the government automatically upon registration of birth. The Medisave Account attracts 5% p.a. interest. Your child gets $200 interest for the $4000 inside their MA. For as long as possible, I would encourage you to let the 5% interest do its magic. Their MA could hit $10k if you let it compound annually at 5% for 20 years.