28 May 2007

Dikkii's financial tips #4: A case study in banking

Welcome to Dikkii's financial tips.

This is a series where I attempt to provide some sort of guidance to financial matters without breaching the Corporations Act by actually providing advice.

Today, we're going to conclude our discussion on bank fees by giving you some idea of the kind of banking undertaken by one who is hell-bent on reducing their fees.

Namely, me.

I will point out at this juncture that I may not be a good role model for your personal banking needs - I will admit from the outset that I have more accounts than I need. But the idea that I'm trying to convey is this: by looking at the fine print, you can save a heap of money on your personal banking, and make life easier for you.

To put that another way, it is up to you to work out what your personal banking needs require - mine may totally not reflect yours. I am not saying that this is a good strategy - even though it works for me.

I will also limit my discussion to deposit accounts. Where necessary, I may discuss lending accounts, but this will, by and large, be limited to their relevancy.

Also, I will use terminology which I introduced in Dikkii's financial tips #2: Why are there so many different accounts? and Dikkii's financial tips #3: How do I reduce my bank fees? so click here for explanation of account and fee types, respectively.

Lastly, thank goodness that bank fees are all over. There's heaps more interesting stuff in this big, wide, financial world.

So on to the case study.

1. Transaction accounts

I have two of these. One of them, I don't need, but I'll discuss that later.

The main one is with a big four bank.

I choose to have my main transaction account with a big four bank, because I value convenience. This particular big four bank has one of Australia's largest network of ATMs, which I find particularly useful.

Normally, this account is subject to an account keeping fee of $5 per month, and allows unlimited EFTPOS, ATM, phone, internet and over the counter withdrawals. If you use another bank's ATMs, there is a fee of $1.50 per use.

I pay no account keeping fee for the use of this account, because I own enough shares in the bank to give me an exemption.

This account is a joint account which I share with my wife. While she is good about using just the ATMs that the bank provides, I'm not so disciplined. We usually pay about $3 per month in other bank ATM fees, and this is totally avoidable. Mea culpa, I'm afraid.

Our account has never been overdrawn, ever. This is because, we always leave a small amount, about $20 in our account at the end of each week.

Our transaction account will usually only have enough cash in it for our weekly cash requirements. Plus the aforementioned margin of $20 which is purely there for any fees at the end of the month.

My other transaction account has a balance of about $2 in it, and hasn't been used in over two years. It is with a credit union, and only exists because I have an unsecured (and reuseable) line of credit with the credit union that I also haven't used in two years.

I keep the unsecured line of credit for emergencies, but the last time I used it was to transfer $1 into the credit union transaction account, which I promptly transferred back into the line of credit again. Just to keep it available.

No account keeping fee is charged on my credit union accounts, and no transaction fees are charged, unless I have cash access. I only have phone and internet access, so I'm charged nothing.

Total fees on transaction accounts = $3 per month, if that.

2. Cash management accounts


I do have one of these. And it's with another big four bank entirely.

Now I don't actually use this account much at all. I got this account initially because my online stockbroker, which is owned by the big four bank from the previous paragraph will give me a fantastic discount on trades for having one of these, and settling my trades through it.

To make it difficult, the account in question needs to be opened with a minimum of $5,000 and only pays interest on balances above this figure, but I only trade about once every couple of months, if that.

So the day after the account was opened, I transferred the money I opened the account up with straight out and back into the online account it had come from. The account would be lucky to have any more than $2 in it at any one time, and I only use it to settle trades and pay my margin loan repayments (direct debit).

It is account keeping fee exempt, and comes with a maximum of 15 electronic transactions, including direct debits for trades and margin loan repayments. Naturally, I'm unlikely to be breaching this at all, so no fees here.

Total fees on cash management accounts = $0

3. Online accounts

I have two of these - one is a joint account which I share with my wife and is with the same institution that our joint transaction account is with. This is where we keep our (admittedly small) "slush fund". The joint transaction account is the nominated account.

The other is in my name and is with yet another institution again. This account is kept to store the funds required to service my margin loan. The nominated account for this is my cash management account.

Most of my salary is directly credited into our joint online account, with a small portion credited to my personal online account. My personal online account also receives the odd credit from dividends and managed fund distributions.

Money from the joint online account is "drip fed" in weekly instalments into our joint transaction account for weekly cash requirements. This is excellent for budgeting.

On top of that, a small portion is transferred from our online account to our transaction account in monthly instalments for bills such as rent and credit card payments.

Money from my personal online account is mainly fed monthly to my cash management account to service my margin loan repayments.

Like most online accounts, these charge no account keeping fees or transaction fees. They also pay a high rate of interest - while they may not be the greatest interest rates on the market, I have absolutely no intention of chopping and changing online accounts just to chase rates - I don't have enough cash to make this a worthwhile exercise.

It would just be a few basis points of interest anyway.

But I still pool money in them - with the exception of one bank's ludicrously humiliating offer, online accounts usually pay a high rate of interest from $1 balances upwards.

Total fees on online accounts = $0

4. Interest

All this time, I have discussed fees, and haven't really broached the subject of interest.

Given the way bank accounts work at the moment, I choose to have as much of my (and my wife's) money in our online accounts at any one time. This ensures that maximum interest is paid and that we only have funds that we need for cash purposes in our transaction account.

We get paid into our online accounts. There the money stays until we need it. Using this strategy with credit cards means further fee saving and interest maximising opportunities, but I'll leave that until I discuss credit cards more.

You can even have more fun rorting the banks with your home loan, but I'll leave that until another day as well.

All in all, I think I do pretty well - I count a total of about $3 per month in fees, all of which can be avoided if I was a bit more disciplined.

You can probably do it with a little more finesse than what I've done it. You just need to know your account types and know your fees. Knowing your interest rates should be the last step.

Lastly, be creative - banks rely on people doing things the same way. If you do it differently, you can consider yourself in front of the game. It's that easy.

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Dikkii's financial tips index

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

9 comments:

taj said...

Since you're our voluntary guinea-richard for this study let's take this a bit further: How much extra in savings per year does the careful fiscal discipline, inter-account transfer and rate-watching buy you? And how much time do you spend each month/year checking up on fluctuating rates and charges?

Dikkii said...

Based on what I'm currently saving, work it out roughly as this:

2 CDs - $60

(Then there's about 2 more based on what I save on my stockbroking.)

The smug look on my face as some bastard at a party finds out that I used to work in banking and whinges about the fees that he/she's paying? - Priceless.

In answer to your second question, I don't. SO I guess the answer is zero. To fees.

To rates, I might just quote myself, here:

I have absolutely no intention of chopping and changing online accounts just to chase rates - I don't have enough cash to make this a worthwhile exercise.

Dikkii said...

I just got hit with some rather nasty "link spam".

Never seen that before.

Plonka said...

Dikkii: I copped that once at Whitepage. It left me a hell of a mess to clean up...

Nice article though. It seems originality is the key.

Dikkii said...

Thanks Ted, nice of you to say.

I'm a bit worried about some of my other posts, now. I'll have to look into cleaning them up, if they've been hit.

beepbeepitsme said...

I don't pay ATM fees or account keeping fees either. If I Make my cash transactions through Woolworths, these transactions incur no charges.

I might have to recheck the account keeping fee part, and make sure they are not charging me.

Most banks will also waive fees to set up an account if you put it on them. Just tell them that you will go elsewhere. That seems to work.

Dikkii said...

"Most banks will also waive fees to set up an account if you put it on them. Just tell them that you will go elsewhere. That seems to work. "

This is true, but I question whether this tactic ensures a better deal for consumers generally.

Certainly, you'll be better off. But will anyone else?

I tend to take the approach that if a bank is going to waive stuff for some who complain loud enough, but not for everyone else, then that bank is not worth doing business with.

In other words, I consider that it's the bank's duty to advertise their best deal, not mine to go out and extract that deal from them.

Also, I just had a quick look at Ezy-Banking's fees (of which yours would appear to be one) and there is no account keeping fee.

Well done, Beep.

beepbeepitsme said...

dikki

Thanks for double checking for me. It is true I hate to pay bank fees.

Dikkii said...

Beep:

You speak for all of us. I don't think that there is anyone alive who actually likes paying bank fees.