EPF Account 3: Is Withdrawing for High-Interest Debt Actually Smart?
Since the introduction of EPF Account 3 (Akaun Fleksibel) in 2024, Malaysians under age 55 have newfound access to their retirement savings. With 10% of monthly contributions now flowing into this flexible pot, many are tempted to use it as an emergency fund. One of the most common questions for those in their 20s and 30s is whether they should use these funds to kill off high-interest debt, like credit cards.
The Math: Interest vs. Dividends
At first glance, the decision seems simple. The average EPF dividend usually hovers between 5% and 6%. In contrast, credit card interest rates in Malaysia can soar as high as 18% per annum. Financially, paying off an 18% debt with money that only earns 5.5% saves you a net 12.5% in interest costs.
Using Account 3 to clear a "bleeding" credit card balance can stop the cycle of compounding debt that keeps many young professionals stuck in a paycheck-to-paycheck cycle.
The Cost of Convenience
However, every ringgit you pull out of Account 3 is a ringgit that stops compounding for your retirement. Financial experts warn that early withdrawals significantly reduce the final "nest egg" due to the loss of decades of interest-on-interest.
If you use Account 3 as a "get out of jail free" card without changing your spending habits, you risk depleting your future security for a temporary fix. It is a powerful tool for debt management, but it should be treated as a one-time surgical strike rather than a regular ATM.
How to Execute Wisely
If you decide to withdraw—which requires a minimum of RM50—ensure the money goes directly to the debt. Once the debt is cleared, consider redirecting the money you previously used for monthly installments back into your EPF via voluntary contributions.
This approach allows you to benefit from the immediate interest savings while working to restore your long-term retirement balance. Master your debt, but do not let your future self pay the ultimate price for today's convenience.