PTPTN better option than EPF?
EPF vs PTPTN: Making the Right Choice for Your Child’s Education
As a financial advisor, I’m often asked by parents whether they should use their EPF savings to finance their child’s education or encourage them to take out a PTPTN loan. I was asked to share my thoughts in an article in The Sun Daily about EPF withdrawals for education.
Understanding the Numbers
The interest rate on PTPTN loans (1%) is significantly lower than the EPF dividend rate (range between 4.75% to 6.15%). This means that from a purely financial standpoint, taking out a PTPTN loan and keeping your EPF savings intact would seem like the better option. However, there are other factors to consider.
Beyond the Interest Rate
Firstly, it’s important to remember that EPF savings are meant for retirement. Withdrawing funds early will reduce your retirement nest egg. Secondly, PTPTN loans have a grace period of one year after graduation before repayments begin. This gives graduates time to secure employment and start earning before they have to start making loan payments.
More Than Just Money
The decision of whether to use EPF or PTPTN should not be solely based on interest rates. Here are some additional factors to consider:
- Do you have Education Fund set aside apart from EPF: Its a good time to review your overall financial position and utilise investments or savings with return lower than EPF first before touching your EPF.
- Your risk tolerance:Â Taking out a loan adds to your overall debt burden. If you’re not comfortable with this, using EPF might be a better option.
- Your child’s financial responsibility:Â If your child is responsible with money, managing a PTPTN loan might not be a problem. However, if you’re concerned about their spending habits, using EPF might be a safer option.
The Bottom Line
There is no one-size-fits-all answer to the EPF vs PTPTN debate. The best option for you and your child will depend on your individual circumstances and financial goals. As a financial advisor, I encourage you to seek professional advice to help you make an informed decision that is right for your family.
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Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs.
Published By:
Lynn Say
Spending time as a chartered accountant in the corporate world gave me perspective on the importance of financial planning for a company. Every company I worked with had an accountant or an army of accountants. This led me to wonder: why are there no accountants for your personal finances?
My clients seek my assistance for a comprehensive financial plan or on specific areas of personal finances that they are concerned with. Sometimes, it could just be as simple as understanding and making a comparison between products. My advice helps save time and money, but more importantly, it’s to prevent anyone from making costly errors due to a lack of better judgement. As an independent adviser, I am not tied to any financial institutions, which makes my recommendations impartial.
I put myself in your shoes to understand your perspective and way of life, so I can help plan, identify potential risks, and find the best solution for you.
