I had an interesting conversation with a friend recently over a lunch gathering during the weekend. It was about all the effort required to manage the multiple high interest bank accounts and associated cash rebate credit cards. Whether it was worth the time monitoring the bank account balances and credit card spending to ensure we maximise the interest earned and cash rebates received.
She gave a good argument on how you should be spending that time and effort more efficiently e.g. trading to earn higher investment income, deriving side hustle income, etc. A case of not seeing the forest for the trees. Which makes sense when you think about the situation she is in. Both her husband and her work while their kids are still young and it takes up so much of their time bringing them up well. This leaves them with a limited attention span to focus on what’s important financially.
And it’s not these high interest bank accounts and cash rebate credit cards that have limited upside since there’s a cap on how much you can earn from them. Let’s not forget she is a decent trader with a track record of earning investment income consistently and has good business ideas that she plans to execute on soon. So their approach is to have 2 banks account and 2 credit cards in total between the husband and her, easy to monitor and manage. As a comparison, we have 10 bank accounts and 10 credit cards in total between my wife and I.
I must admit that I have never thought about the opportunity cost of managing so many bank accounts and credit cards. It just didn’t occur to me that simplification could be a possible way to approach this. However, our personal circumstances are different since we have no kids, no trading ability to generate investment income and no business ideas to execute on. By now, the process of monitoring the bank account balances and credit card spending has become so natural that we just execute the actions without thinking. This is taking into account the initial time and effort needed to set up the entire personal banking system.
That was the argument I floated across to her. In terms of time and effort, the initial setup costs are high but the ongoing maintenance costs are low. Doesn’t she want to optimise her idle spending, emergency and investment cash funds? Another good answer from her. She doesn’t keep excessive spending, emergency and investment cash funds like us since they are usually deployed in the markets for higher returns. She only holds sufficient levels as insurance against job loss but doesn’t see the need to hold beyond that since both of them are still working and drawing high salary income. My wife and I always have a tendency to keep large cash balances in bank accounts. Call it peace of mind, sense of security. But it makes us feel safe. Though it’s not efficient from an investing perspective.
I enjoyed having that conversation very much. It’s not often I get to debate on various financial approaches. The point is not about who’s right and wrong. Everyone has a different strategy. Yes, over time, some may prove more effective than others. But it’s more important to find out what works for you personally. I probably should start attending more talks and seminars to meet like-minded people. The good thing for my wife and I is that we have a close circle of friends that are older than us with kids and more life experience. We are the youngest in that group and continue to learn as much as possible from them.
I agree with what you say in that I think there’s a big learning curve, but then the maintenance gets easier. My wife and I have about 10 travel rewards credit cards, plus money invested in the markets (but we don’t actively trade).
Though learning to maximize the credit cards had a long learning curve and is still ongoing, we are already reaping the rewards and saving thousands in travel every year.
That’s what I thought! We have money invested in the markets as well but don’t trade. Even if we need to raise cash to invest, it’s easy to transfer large amounts of funds between bank accounts instantly. Which means it’s possible to take the initial time and effort to optimise the high interest bank accounts and associated credit cards.
It’s definitely more challenging in today’s ZIRP & NIRP world. Singapore has it even worst with ZIRP practically in place since the 1998 AFC & early 2000s dot-com bust.
I don’t qualify for today’s “high” interest-rate accounts since I don’t have regular income to credit into, and may not always hit the minimum spend on credit cards! :O
I was lucky to have experienced reasonable inflation-matching FD rates and no-frills 3% savings accounts were not uncommon. Savings was a whole lot simpler in those years!
As local savings interest rates came down due to economic & structural reasons, I started to put into money market funds & money market accounts (banks like Citi & BOA previously).
Then after SARS, even MMFs yields cratered to 1+% … today it’s like 0.8%. So in the mid-2000s I was forced to use short-duration quality bonds for the bulk of my cash. Still do & giving 3%-4% over past 12 years.
BUT … needing monitoring & switching into safer MMFs whenever short-duration bonds showed price weakness. And of course lesser liquidity compared to pure bank accounts. Need 4-6 biz days to get out cash-in-hand.
I guess no free lunch in today’s yield-starved world. That’s why the compressed yields in dividend stocks, junk bonds, emerging bonds, preference shares & perpetual bonds.
Oh well, most important is to find what works for our own circumstances, needs, temperament & psychological make-up. 🙂
Wow, I didn’t realise how much has happened to the Singapore economy in the past 2 decades until you wrote a timeline like that. I haven’t explored using MMFs and short-duration quality bonds as a means to optimise our idle cash. The turnaround of 4 to 6 business days to get cash-in-hand is acceptable since we don’t trade but look for a good time to invest i.e. it doesn’t matter as much how quickly we raise the funds. Yup, it’s essential that we figure out what works for us based on all those factors.
Hi Finance Smiths, I am in the same situation where I manage a few bank accounts and credit cards. The initial process was difficult, but the maintenance is easy. There were continuous improvements along way but they are incremental. I am not good with stock picking, so I went the Index ETF dollar cost averaging route.
Well, different strokes for different folks. Glad to know that there are folks doing the same thing as I do.
Cheers,
Naro
Hi Naro,
Yup, seems like I have taken a similar route to you. It takes a while to get the hang of managing multiple bank accounts and credit cards. Haha, index ETF dollar cost averaging works for me too because my attempts at stock picking have been disastrous. Let’s hope this works out for us!
Cheers,
John