Your credit card can earn you money. Although the terms and rates below are Australia-specific, the basic principle holds. I’m gonna tell you how I do it but these are the prerequisites:
- Daily transaction account with ATM access
- Online savings account with high interest rate
- Credit card with low or no annual fees, and a lengthy interest-free period
Usually the features of a daily transaction account are convenience and the availability of your money where an ATM or EFTPOS is available. But the downside is low interest rates.
Online saving accounts these days pay high interest rates which are comparable to fixed-deposit rates. Two of the better deals in Australia are from CitiBank and ING Direct. Both allow unlimited transfer to and from your daily transaction account and do not require a minimum balance. CitiBank also offers a $5/month option to have unlimited ATM/EFTPOS access. ING Direct requires you to transfer the funds to your daily transaction account, which you then withdraw from an ATM.
Not all credit cards are the same – choose one with a very low or no annual fees, and has a lengthy interest-free period. I’m with Virgin and they have no annual fees and their interest-free days is 55. Which basically means I can spend the money now and have almost 2 months to pay the money back without incurring interest.
In the first month that you start this, the basic principle is as follows:
- Do all major purchases and bill-paying with *one* credit card.
- Transfer the bulk of your money into the high-interest online savings account. Leave approximately 2 months expenditure in your daily transaction account.
- When your credit card bill arrives, transfer the full amount due from the high-interest account into your daily account. *Pay on time* – otherwise you’d incur the penalty interest which is always higher than that of any savings account. To make this step easier, you can arrange for the credit card company to deduct the due amount automatically from your daily account.
And that’s it. Essentially you are earning about 2-months interest on money that you have to give up anyway. The interest that you earn will also gradually increase due to being compounded.
If you co-ordinate things correctly and discipline yourself, then the steps may eventually become this:
- Spend spend spend. Pay bills.
- Salary gets deposited into your account.
- Credit card bill arrives.
- Deduct from your salary the due amount, and the amount that you think you’d spend in the next month, and transfer the rest to the high-interest account.
- With a bit of control and discipline, the balance in the high-interest account should grow, increasing even more the interest that you’d gain by using this method.
The whole point is to not let money sitting around doing nothing, but to earn some interest instead. If you have a mortgage, then swap out the online savings account with your mortgage account in the steps above.
Have you got any similar tips to share?
*no affiliation with any of the companies mentioned above*
[tags]budgetting, life tips[/tags]