My Portfolio

Monday, August 8, 2016

Savings Account

The two popular savings accounts are the OCBC 360 and UOB One Account. A lot of blogs have written about it, such as AK and another.

Credit Salary - 1.2%
Pay Bills - 0.5%
Spend Card - 0.5%
Base interest - 0.05%

OCBC yields 2.25% (in my case)

In summary, both agree on one thing:

Use OCBC if you have less than $42k.
Use UOB if you have between $42k to $50k.
Above $50k, use UOB and put the remainder into OCBC.

The reason for this allocation is due to UOB's tiered interest structure.

Above $50k, UOB only earns you 0.05%, so its better to put it somewhere else.

While UOB offers a better return of 2.43% on a $50k balance, it requires more conditions to be fulfilled.

1. Spend $500 on UOB One card
2. Credit Salary or Giro 3 bills

Spending $500 on UOB One card is easier 
Compared to OCBC 365 card, UOB one card has no categories. OCBC 365 also requires a min spend of $600 to earn bonus rebates.

The problem comes with the hassle (or convenience) of giro. In the event that you want to stop the giro, lose a job, or forget/unable to spend $500 on the UOB One card as you lost your card, thats it.

No bonus interest.

What it means for me
First, a savings account serves the following purposes:

1. Contain my war-chest
2. Emergency funds for unemployment (& illness)
3. Big ticket items

All these means it needs to be Liquid.

In the event i am unemployed, there will not be any salary. I may not be able to spend $500 on my card as well.

In this case, OCBC will get me 0.5% if i pay 3 bills online, and UOB will get me nothing.

BUT this is not an issue
I will transfer my holdings to Standard Chartered (if there is a promotion) or CIMB Fast Saver, to earn 1.55% or 1% respectively.

The only concern will be minimum required funds. OCBC requires $3k while UOB requires $500.

Second, since I am allocating most of my funds into stocks, it is unlikely that i will hit $42k in savings. Hence, OCBC seems a better choice for me in my early career.

After deciding on OCBC 360, should i spend on OCBC credit cards?
Realistically, i would have a maximum of $20k in savings.

This raises an interesting observation:
With both OCBC and UOB, i will earn exactly the same amount of interest, if i spend on UOB One card. 

Interest: $350 a year
Card rebate: $200 a year

Total: $550 a year

If i spend on OCBC Credit card, OCBC 360 will give me:

Interest $450 a year
Card rebate: $216 a year ($600 on 3% rebate)

Total: $666 a year

The 0.5% bonus from spending on OCBC cards is $100 per year.

Hence, the effective cash back that OCBC credit card has to give, to break even from UOB $200 rebate, is 1.39% (100/(600*12)). This should be relatively reasonable to meet.

The problem is OCBC 365 card has categories to meet, mostly dining promotions and a minimum spend of $600. On the other hand, UOB one card has no categories and requires just $500 spend.

If I fail to meet the $600 min spend, (say i spent $500) i will get 0.3% cashback which amounts to a pathetic $1.50 per month, $18 per year. In this case, spending on UOB One card is better.

More work has to be done on discovering my spending habits (cash or credit card payment and categories spent on) before i can accurately determine whether to use one card or other cards.

Power of Cashback
If you spend $600 and earn a 3% cash rebate, you receive $18 per month.
If you spend $500 and earn a 3.33% cash rebate, you receive $17 per month

Compare this to a 3% interest (say fixed D), you will need $7,200 to earn similar amounts.

Cashback, if used for spending that you will have to make anyway, is probably more profitable than your interest in savings account. (Plus, its easy. At least some cards, anyway)