Thursday, 10 March 2016

Which Bank Account - Emergency Funds

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! 

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