Passive income post time! First one of the month is usually for the interest income received from our various bank accounts in Singapore and Australia. For certain months, we also receive interest income from the corporate bonds that we hold. And Feb 2017 is one of them. Which is why this post is being written towards the end of the month since I was waiting for all of the interest to be credited first.
Singapore Bank Accounts
- UOB One: S$205
- OCBC 360: S$111
- Stan Chart/CIMB/POSB/ANZ: S$50
Singapore Corporate Bonds
- CapitaMall Trust Bond 3.08%: S$31
Australia Bank Accounts
- NAB/ANZ: S$130
Total for Feb 2017: S$527
I have been receiving questions on:
- Why is my monthly interest income so high for my Singapore bank accounts?
- What are my average bank account balances like?
- How have I been meeting the minimum spending on the relevant credit cards?
- What’s the point of earning higher interest income if I’m spending so much on credit cards?
- Why do I bother to track interest income?
I might as well answer these queries in this post although I might not address them one by one and in order.
2 x UOB One Bank Accounts at S$50,000 each
- Minimum monthly spending of S$500 on each of the 2 x UOB One Credit Cards and supplementary cards. Expenses charged for ours and our parents’ telecom bills (cable TV, internet, mobile & home phones), shopping, personal care, entertainment and travel spending
- Average interest rate of 2.43%p.a
OCBC 360 Bank Account at S$60,000
- Minimum monthly spending of S$600 on OCBC 365 Credit Card and supplementary cards. Expenses charged for ours and our parents’ dining and groceries spending.
- Average interest rate of 2.2%p.a
Stan Chart/CIMB/POSB/ANZ Bank Accounts at S$40,000
- No minimum monthly spending on credit cards but I consistently look out for Stan Chart deposit promotions
- Average interest rate of 1%p.a
It’s not about intentionally spending more on credit cards to achieve the higher interest rates. It’s about optimising yours and your parents’ current spending on these credit cards. Instead of contributing cash to our parents, we direct their expenses to us via supplementary cards i.e. we pay for their various types of spending. Now you can see why S$1,600 of minimum monthly spending is not difficult to achieve. Let’s not forget my wife and I are a high spending household as well.
We view the higher interest income as a reward for being able to apply a more efficient approach to credit card spending by us and our parents. Not as a means to cover our expenses since there’s a limit to how much more interest income we can generate (although it does help when coupled together with the cash rebates on the credit cards). Which is why you will find that the monthly interest income is hovering around the S$500 level. It only spikes when there are corporate bond interest payouts in that month.
We track our monthly interest income since it is part of our passive income level monitoring. More importantly, it’s an indicator of how efficient we are utilising our cash balances i.e. to ensure we continue to invest it regularly in ETFs and shares. I saw an interesting question on a Facebook group about how we should prepare for a bear market now that we are happily watching our portfolio values rise from the bull market. I haven’t been through a severe enough bear market to have a suggestion based on my insufficient experience.
But I can tell you what I’m doing now and that is to increase my cash balances at a quicker rate. Not by selling my existing portfolio holdings but by earning more money and investing less of it. I consistently increase my exposure to equity markets via automatic investments in ETFs but I try to save more than I invest to have a net cash inflow every month. It forms a natural hedge in a bull or bear market.
Think about it. If this turns out to be a sustained rally, I gain from the rise in portfolio value and dividends paid due to the automated investing. Positive side effect: I don’t feel like I’m losing out from watching the markets climb upwards and don’t see the need to make manual investments. If this turns out to be edge of a severe bear market, I gain from having sufficient cash holdings to make significant investments during that time. Positive side effect: Cash reduces the magnitude of my portfolio losses and makes me less likely to panic. However, I will continue to provide updates on my strategy as things change since it’s important to have a flexible approach.
Hi,
Thanks for sharing, i wonder if you need to pay 30% tax for the Australia bank account interest? I had one and the tax was deducted before the interest is credited into the account.
Regards
According to the Australian Taxation Office (ATO) website, if the interest payment is made to a resident of a country which has a tax treaty with Australia, that treaty sets the rate of withholding which is required. If there is no tax treaty the rate will be 10%.
Singapore has a tax treaty with Australia and the rate of withholding on interest payment is 10%. As such, 10% of my gross Australian interest income is withheld so I’m only showing my net interest income figures for my Australia bank accounts.