As of last year, Malaysian citizens and permanent residents have been allowed to withdraw their EPF savings to stay afloat during the pandemic. As you would already know, your EPF (also known as the Employees Provident Fund) is your retirement savings. Because of this, the decision to allow people to withdraw it earlier has been quite controversial.
On one hand, the extra cash would help those who need them. On the other hand, there is the concern that if people spend some of that money up now, they won’t have much left for their retirement. There are pros and cons to withdrawing your EPF—we’ve covered this previously and we’ll leave a link to that at the end of the article.
On that note, today we’ll tell you what can happen if you decide not to withdraw your EPF money.
1. Compounding Interest
When you contribute to EPF, you will get an interest on top of your contribution every year. There’s also something known as a compounding interest, which is an interest on an interest. Think of it as a double interest.
This means that at the end of the day, when you decide to withdraw your EPF money, you would have more money than the total amount of money you had contributed. The earlier you withdraw your money, the lesser the amount of compounding interest you will have.
On the other hand, not touching your EPF means that your compound interest will grow and you’ll just end up with a bigger and better retirement fund.
Dividends are the payments given to an organization's stakeholders. When you contribute to EPF, your money will be invested in various places and you get paid dividends for it. Similar to the compounding interest, the longer you leave your money in your account, the higher the dividends you’ll accumulate.
According to the EPF website, your dividends are calculated based on your daily aggregate balance. So naturally, if you remove part of that money, your dividends will go down.
3. Pay off your loans
If you withdraw part of your EPF now, you’re likely doing this to pay off any debts and expenses. But if you can help it, keeping your EPF for longer allows you to pay off any commitments you might have at a later stage of your life.
So for example, after you retire you might have a house or car off to pay—or even medical costs if you don’t have medical insurance. For this reason, it’s good to keep your EPF money for when you are older and might not be able to work anymore.
4. You can pass it on your family
If you didn’t already know this, you can nominate people to inherit your EPF money after you are no more. Typically, this money is left to family members or other next of kin.
Besides your savings in your bank account, your EPF money can be an added inheritance for them if you want to ensure they’re more financially secure.
To nominate a beneficiary, you’ll need to go to an EPF branch in person and submit the required documents. The procedure for this and the list of documents can be found here. Take note that there will be a slight difference in the process for Muslims and non-Muslims.
It’s good to nominate someone to inherit your EPF money, otherwise it can be a hassle for your family to retrieve that money after your demise.
We’ve listed the pros of keeping your EPF money untouched for as long as you can, but ultimately, the choice is still yours. If you’re in greater need now to pay off your commitments, you can withdraw your money. Just be mindful of the downsides of doing that, and be sure that you are careful with how you spend it.
And if you'd like to read our article on the pros and cons of withdrawing your EPF early, check out the link below!