Sunday, 13 March 2016

Which Bank Account - Investment Funds

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.