The fact that Singapore is facing a declining birth rate is a well-known problem. The government has been trying everything it can to address this issue and that includes throwing in the proverbial kitchen sink. Well, it is indeed throwing something at the problem and that is money. It has increased monetary incentives to all parents-to-be to help them cope with the costs of raising a newborn. Since they are there for the taking, it will be foolish for first-time parents not to take full advantage of them if their circumstances allow. Find out more about the 2018 Baby Bonus Scheme and choose the best Child Development Account (‘CDA’) for your newborn in this article.
What is Baby Bonus Scheme 2018
According to the Ministry of Social and Family Development (‘MSF’), the Child Development Co-Savings (Baby Bonus) Scheme aims to lighten the financial costs of raising children. It consists of 3 financial components:
- A Baby Bonus Cash Gift
- CDA First Step Grant
- Dollar-for-Dollar matching by Government to savings in the child’s CDA
To participate in the Baby Bonus Scheme, it is possible to join as early as 8 weeks before the child’s estimated delivery date. This is what Heartland Boy has done as he would like to minimize the administrative work needed to be done after his baby girl is born. Parents who like to be equally well-prepared or kiasu can sign up online at the BabyBonus website.
1. Baby Bonus Cash Gift
For children born after 1 January 2015, this is the disbursement schedule for the Baby Bonus Cash Gift. In other words, this is how the Baby Bonus Cash Gift will be paid out.
You simply inform MSF the bank account that you would like the Baby Bonus Cash Gift to be credited into when completing the online form. For the rest of the payment milestones, Heartland Boy thinks you can leave them to the safe hands of Singapore’s extremely efficient civil service. Since this money is credited into any bank account nominated by the parent, there is no restriction on the usage for this source of funds. Be a responsible parent and don’t harbour any other thoughts especially since the government’s intention is for parents to utilise the cash gift to pay for the child’s expenses.
2. Child Development Account First Step Grant
What Is A Child Development Account (‘CDA’)
The Child Development Account (‘CDA’) is a special savings account for your newborn with the special feature of dollar-for-dollar matching by the government. Usage of funds in this account is more restricted as there is a pre-determined approved set of uses.
The CDA First Step Grant will automatically be deposited into the CDA within days of account opening. All newborns who are Singapore citizens born after 24th March 2016 will be eligible to receive the CDA First Step Grant of $3,000.
Approved Usage of CDA Funds
- As the name suggests, funds in the CDA can only be used to pay for your child development needs at approved institutions. It can range from child care centres, kindergartens, providers of early intervention programme, medical-related expenses, Medisave-approved private integrated shield plans etc. For the full list of approved institutions registered under the Baby Bonus Scheme, readers may refer to MSF’s Baby Bonus website.
- The good news is that funds in your CDA can be used in any proportion on all your children.
- Any unused balance in your child’s CDA will be transferred to his/her Post Secondary Education Account (‘PSEA’) in the year the child turns 13. Funds in the PSEA earns an interest pegged to the CPF Ordinary Account and that is 2.5% currently.
3. Dollar-For-Dollar Matching In Child’s CDA
What makes the CDA special is the feature of dollar-for-dollar matching of the contribution from the Singapore government. However, this feature is subject to a contribution cap which varies according to the child’s birth order as shown below:
Pregnancy and delivery of a newborn can be a costly affair. Therefore, the good news is that CDA trustees have up to 12 years to top up the CDA accounts of their children. If cashflow is tight throughout this period, it is also not compulsory to maximise the CDA grants from the government.
Best CDA Account For Your Newborn
Currently, only DBS, UOB and OCBC are the approved institutions to offer CDA. Heartland Boy compared and reviewed the respective CDA offerings from the 3 local banks so that he could choose the best CDA for his newborn.
Heartland Boy chose POSB Smiley CDA for the following reasons:
- There is no reason to max out more than $36,000 in a CDA even if the child’s order is 5th and beyond. Although the interest rates offered are highly competitive, CDA trustees must not forget that savings in CDA are less liquid owing to its restricted usage. Withdrawal of such funds in cash is impossible and therefore, it should not be viewed as a source of emergency cash. There is a slew of savings products that offer high interest rates as well. Therefore, viewed in this light, the interest rates offered by the 3 local banks on their respective products are equally competitive.
- Even though he bought OCBC’s Max Maternity Insurance plan, the $108 credit is a premium voucher that can only be used to offset the child’s Supreme Health Plan offered by Great Eastern. Since he has decided to go with AIA for his daughter’s Hospitalisation & Surgery policy, this $108 premium voucher will not be useful in the end.
- POSB Smiley CDA seem to have stronger merchant tie-ups and the 3% cash rebate on medical spend could come handy one day. Do note that a minimum of $500 monthly eligible retail spend must be met before the PAssion POSB Debit Card holder receives 3% cash rebate. He has not decided on whether he will be getting the card yet.
So do not forget to sign up for the Baby Bonus Scheme if not you may not enjoy these freebies!