When buying a property, most Singaporeans use a combination of cash and CPF Ordinary Account funds. The question of which to use first has long-term financial consequences.
The Case For Maximising CPF Usage
Using CPF first preserves your cash — which is more liquid and flexible. Cash can be deployed for emergencies, investment opportunities, or discretionary spending; CPF in a property cannot. For families who value liquidity and flexibility, maximising CPF usage while maintaining a strong cash buffer makes intuitive sense.
The Case For Preserving CPF
CPF OA earns 2.5% per annum guaranteed — with no downside risk. Every dollar used on property is a dollar not accumulating toward your CPF LIFE annuity. For buyers who are older or closer to retirement, preserving CPF to fund retirement income takes on greater significance.
The Accrued Interest Consideration
Every dollar of CPF withdrawn for property accumulates accrued interest that must be refunded at sale. The effective cost of CPF usage for property is the accrued interest at 2.5% compounded, even if it doesn't feel like a cash outflow in the present. The practical balance: use CPF for what you need, maintain a meaningful cash buffer, and check your CPF projection for retirement before committing.