Finance Smiths

This should be my last post on the bank account series for now. Previously, I had blogged about accounts for expense funds and emergency funds. This post will be about investment funds i.e. cash holdings held for the purpose of investing in ETFs, shares and bonds. The account housing these investment funds should have more banking activity than the one for emergency funds but less banking activity than the one for expense funds.

Ideally, there should be no link to a credit card since it’s only going to encourage you to spend more to meet the requirements to obtain the higher interest. In our case, we already have the OCBC 360 account linked to the OCBC Robinsons and OCBC 365 credit cards as well as the UOB One account linked to the UOB One credit card. I might blog about the POSB Everyday and Citibank Premiermiles credit cards we use for public transport, overseas spending etc in another post. They capture most of our monthly spending and I must point out that it does require a high level of discipline to manage these accounts and credit cards.

Investment Funds

I started out using one bank account to store the investment funds – CIMB FastSaver Account. I could open this account online (i.e. no trip to the CIMB branch) and the interest rate of 1% pa is earned on the entire account balance as long as it is above S$1,000. There are no conditions attached (i.e. no credit card spend, salary crediting or online banking transactions etc) and no fall below fee.

Think about the nature of investment funds and you can see why this account is a good fit. At times, I can draw down on the balance significantly when I’m investing during a bear market. Other times, the balance stays the same or increases slightly when I’m not investing and just add cash holdings to it. However, the balance should almost never increase excessively since my investment plan (especially with the ETF portfolio) requires us to stay vested in the market for a long time. I also don’t spend these funds on anything else because I try to maintain separation from the expense and emergency funds. With the CIMB FastSaver account, I get the 1% pa on the account balance, which is not the highest interest rate achievable but it’s higher than most savings accounts. In exchange, I get quite a bit of flexibility when managing this account.

Why not just the CIMB FastSaver Account?

As part of setting up my Stan Chart online trading account, I had to set up a Stan Chart e$aver Account. Over time, I started noticing Bonus Interest promotions like this. When you transfer fresh funds into the e$aver account, you earn bonus interest (above 1% pa) on the incremental balance for a 2 month period. There are similar Bonus Interest promotions on other accounts such as the UOB Uniplus Account with a slightly different 2 month period. I realised that by rotating the investment funds between the CIMB FastSaver, Stan Chart e$aver and UOB Uniplus accounts, I could increase the average interest earned above 1% pa. The funds transfers between the accounts can be done using Fast and Secure Transfers (FAST) and I can move the funds around on internet banking in one or two online transactions. This requires more active management of the investment funds but I have been doing it for a while now and it’s just a matter of getting used to it. Anyway, it really does make a difference on the interest earned especially when you have a significant balance. After all, more effort is required to translate to a higher return.

This post is a continuation of my previous post on which bank account to use for expense funds. As I have mentioned previously, a good starting point for your personal finances is to sort out your bank accounts to maximise the interest earned. It’s a one-time exercise to work this out and you get rewarded with subsequent higher monthly interest earned as long as you meet the requirements of the bank account. In Singapore, there tends to be a link between your bank account and credit card to earn the higher interest. For example, our OCBC 360 bank account third bonus interest of 0.50% pa is linked to the spending on our OCBC Robinsons and OCBC 365 credit cards.

Emergency Funds

I have been trying to insert basic images to illustrate my point, just so that the post won’t be filled entirely with words. Hope this makes it more interesting to read and remember! Anyway, the bank account housing your emergency funds should be quite dormant i.e. minimal banking activity. If you can automate the transactions required to meet the higher interest rate requirements, do it just so that you can reduce the level of monitoring required for this account. Again, I will use my UOB One bank account as an example. You can refer to the UOB One Account website for more information and there are many articles on the internet comparing this account with the OCBC 360 bank account. For this to be useful, I will write about how I structure the UOB One account so you can apply the same logic when choosing your emergency funds account.

Bonus Interest

The bonus interest rates available for the UOB One bank account are different depending on the amount of funds you have in the account. In our case, we have S$50,000 of emergency funds, which means we get to the highest tier of bonus interest rate. Any excess amount above S$50,000 earns 0.05% pa so you are better off depositing the excess amount in another account that earns more than 0.05% pa (of which there are plenty).

UOB One Credit Card S$500 Calendar Month Spending

If your salary is already being credited into another bank account (like the OCBC 360 account in my case), you no longer have the option of crediting your monthly salary of minimum S$2,000 into the UOB One account. Unless you have a partner that can meet this salary crediting requirement (in which case he/she will manage the emergency funds), the alternative is to spend S$500 on your UOB One Credit Card each calendar month. How this UOB One credit card works can be quite complicated and I recommend reading the website to understand this. Essentially, you need to have at least 3 transactions for each billing monthly cycle where the total amounts exceed S$500, S$1,000 or S$2,000 over a period of 3 billing monthly cycles to enjoy S$50, S$100 or S$300 of quarterly rebate. Confused yet? Go read the website because it helps!

Notice how I put calendar month and billing monthly cycle in bold? This is important because the timing of the S$500 spending can impact either the bonus interest earned on the UOB One account or the quarterly rebate earned on the UOB One credit card. I will use my recent personal experience for Feb 2016 as an example. I spent S$500 on the UOB One credit card but did not get the bonus interest on the UOB One account. The reason was that my billing monthly cycle (13 Feb 2016 to 12 Mar 2016) is not the same as the calendar month (1 Feb 2016 to 29 Feb 2016). Hence, some of my transactions between 1 Mar 2016 to 12 Mar 2016 were not counted as the Feb 2016 calendar month spending. As such, my spending for the Feb 2016 calendar month was below S$500 and I didn’t get the bonus interest on the UOB One account. Makes you wonder why I still stick to the UOB One account and credit card yeah? I hope I can convince myself by the end of this post.

The biggest benefit of the UOB One credit card is that it counts most transactions towards the S$500 billing monthly cycle spending to get the 3.33% quarterly rebate. Unlike the OCBC 360 credit card that mainly offers 3% – 6% rebates on dining, groceries and certain online spending (excludes telco bills), you can see how the UOB One credit card can soak up other types of spending such as telco bills, shopping and personal care appointments. Usually, we charge our monthly telco bills (Singtel and Starhub), groceries, shopping and dining expenses to the UOB One credit card first to meet the S$500 calendar month spending requirement. This allows us to get the bonus interest on our emergency funds in the UOB One account, which is more important to us than the OCBC 360 bank account third bonus interest of 0.50% pa from meeting the OCBC credit card spending requirement.

Pay 3 bills monthly via GIRO

Currently, we paying our UOB One credit card bill monthly using GIRO from the UOB One bank account. Note that this has to be set up by submitting a GIRO application form to UOB. We are also paying our IRAS income tax and property tax bills via monthly interest-free instalments from the UOB One account. This can be applied for online using UOB internet banking.

Why the UOB One Account?

As you can see from the above, other than the S$500 calendar month spending on the UOB One credit card, there is minimal monitoring required of the UOB One bank account. After all the GIRO deductions have been made for the monthly bills, we just top up the UOB One account balance back up to S$50,000 at the end of each month. Less effort but more interest!

When we were in Australia, the bank accounts to be opened were quite straightforward. We opened transaction accounts with the major banks and the interest rate on these accounts is about 0.01% pa. To get a higher interest rate,  we opened online saver or isaver accounts and put most of our savings there and the interest rate on these accounts vary according to the cash rate set by the Reserve Bank of Australia. In the current low interest rate environment in Australia, the interest rate on these online accounts is about 2.50% pa.

In Singapore, the process gets more complex if you want to earn a higher interest rate on your savings. Generally, the interest rate on most transaction accounts here is about 0.05% pa. Fixed deposit accounts tend to be a popular way to earn higher interest but the cash gets locked up for a period of time. What I will write about in this post and the next few posts is how you can set up your bank accounts to earn higher interest without relying on fixed deposits. I will also write about the bank accounts I use as suggestions on how to structure these accounts for the 3 main purposes of cash holdings – Expense, Emergency  and Investment. Ideally, you separate these 3 groups of cash holdings in different bank accounts but it’s possible to mix them in the same bank account if you are disciplined enough.

Expense Funds

Since this is your main transaction account, you need to look for a bank account that rewards a higher level of banking activity. If you work in a retail bank, you are often required to credit your salary in a bank account with the same retail bank. Hence, that might be a good place to have a look first but do remember that there are a number of options out there. For illustration, I will use my OCBC 360 account as an example. You can refer to the OCBC 360 Account website for more information and the many articles on the internet about the benefits and cons of the account. I will write this from my perspective so you can see how you can apply the same logic in choosing your expense funds bank account.

Bonus Interest

1. For you to even consider the OCBC 360 account, you must be able to credit your monthly salary of at least S$2,000 through GIRO and that gives you the first bonus interest of 1.20% pa. If you don’t have this option to credit your monthly salary into the OCBC 360 account, you are better off searching for another bank account.
2. To get the second bonus interest of 0.50% pa, you have to pay 3 unique bills online or through GIRO. Unlike the UOB One account whereby the bill payments have to be through GIRO, you have the option to pay these 3 bills online for the OCBC 360 account. This makes it useful for the payment of credit card bills with different banks.
3. For the third bonus interest of 0.50% pa, you have to spend at least S$500 on your OCBC credit cards monthly. We use the OCBC Robinsons and OCBC 365 credit cards to meet this requirement. Basically, if you shop at Robinsons & certain retails stores, buy groceries, dine out and do online shopping, you should be able to meet this requirement.
4. The fourth bonus interest of 1% pa is on incremental account balances from month to month.
5. The fifth bonus interest of 1% pa for 12 months is only relevant if you purchase a new insurance or investment product from OCBC.

Why the OCBC 360 account?

Given the link between the OCBC 360 account and your salary, credit cards and bill payments, the number of monthly transactions will require more monitoring of this account. This makes it useful as a bank account to store your expense funds. Since you will be drawing down this account to fund your expenses on travel, dining, entertainment etc, it helps to have the salary credited into this account so you won’t have to keep topping it up. The account also rewards you for not spending since the fourth bonus interest of 1% pa on incremental account balances is like a benefit for any build up of your expense funds. Since any amounts above S$60,000 do not earn the bonus interest, that should be the limit for this bank account. In any case, you really shouldn’t have S$60,000 of expense funds unless you have mixed in emergency funds as mentioned above. You will have to be more disciplined when it comes to tracking your spending and managing this account if you have a mix of expense and emergency funds.

Instead of mixing in emergency funds, you can allow for the build up to S$60,000 and call any excess amounts above the required level of expense funds as “Joker funds”. You see, the way I view savings is any unspent cash in my bank accounts i.e. cash holdings. However, there has to be an objective for these savings and my 3 main purposes are  – Expense, Emergency and Investment. The reason why I have Joker funds is when I have met my target asset allocations for the 3 groups of cash holdings and there is excess cash. These Joker funds can essentially take on the nature of any of the 3 groups of cash holdings. Although it seldom happens, it’s a good feeling when I realise I have Joker funds since that’s like having a trump card up my sleeve. Most of the time, I use these Joker funds to invest into the ETF and Share portfolios. For the rest of the time, it gets used on special trips like our first ski holiday in Niseko last Christmas. That’s how we keep motivating ourselves to work hard on this journey to Financial Independence!