Your credit card can earn you money


August 14, 2006 7:11 PM
Virgin credit cards

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:

  1. Daily transaction account with ATM access
  2. Online savings account with high interest rate
  3. 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.

CitiBank

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:

  1. Do all major purchases and bill-paying with *one* credit card.
  2. Transfer the bulk of your money into the high-interest online savings account. Leave approximately 2 months expenditure in your daily transaction account.
  3. 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:

  1. Spend spend spend. Pay bills.
  2. Salary gets deposited into your account.
  3. Credit card bill arrives.
  4. 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.
  5. 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.
Cash, ID and credit-card

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]

37 thoughts on “Your credit card can earn you money

  1. clever ££s

    yep that is what I do as well. Therefore my RM1000 splurge on Shu Uemura is still unpaid for – I signed up for a new ccard before I went back and effectively have until December to pay it off (initial 6 months intrest-free); with minimal payments each month and no intrest charged until January.

    Will be going for another ccard in Dec before heading towards OZ.Not sure if they have this sort of deal in other countries,but those with ££ should definately practice this.With control

    Reply
  2. virgin_undergrad

    I used to bank with Commonwealth, but i’ve since switched to Westpac. The Westpac Max-I account is similar to most Fixed Deposit accounts but it affords the additional flexibility since it’s interest is compounded daily.

    Most other Fixed Ds Commonwealth one only compounds the interest based on the account balance at the end of the month. So let’s say i pay the rent at the end of the month, i would lose the accrued interest which i earned on the rent money earlier that month. In fact, there’s probably some provision which actually penalises u for withdrawing money from the fix D before maturity. Damn ma fan.

    But of course, the downside to that is that the Max-i interest rates fluctuate (both ways), so it isn’t exactly a fixed-interest deposit per se. Even so, the interest is still pretty comparable to the other Fixed D rates.

    Reply
  3. virgin_undergrad

    Actually, having re-looked at the title of your post, i would say, the best tip is probably not to spend on credit, or at least not chalk up ridiculous amounts on your credit card, only having to service the even more ridiculous interest charges.

    Barring the unattainable ‘credit gift points’ and mileages advertised, i personally think a debit card which debits your savings directly is a much better alternative to shop. Not only do u not pay interest, makes u feel the pinch when ever you read the bank statements which will probably deter you from overspending.

    Reply
  4. mooiness Post author

    clever ££s : wahaha, 6 months interest free? Woohoo. You better have some good control and willpower there. :mrgreen:

    v.u.: I am not encouraging spending at all. With control, my method will earn you money in the long run. Provided that your spending pattern remains stable and you spend within your means.

    Reply
  5. Leonard

    dun ever fall for those balance transfer with 6 months interest free. think easy to repay, very hard lar..i’m excperiencing now!!!

    the best way is used the card when needed, have a good memory, never overspent!!!

    or, get a dividends card, earn discount and cash when using the card…citibank has it!

    Reply
  6. clever $$

    Well, note the last words on my comment

    WITH CONTROL.

    If as a grown up adult you have no willpower and cannot control your spending then you boh liao.I have had credit cards for 8 years – and am never late with my payments nor even have any outstanding payments by month end -always paid in full.Thus I know my will power is quite good.

    (I have a RM 21,000 limit on my current 6 month interest free ccard by the way.If I cannot control then I must declare bankruptcy in Jan:))

    Reply
  7. mooiness Post author

    yeahloh agree – CONTROL. If you can’t trust yourself with your spending then this method is not for you. You can try by paying only essential bills on the credit card first – that way you’d still earn interest off money that you were gonna have to pay anyway.

    Oh and my current limit is AU$12,000. :mrgreen:

    Reply
  8. LupinTan

    Not many pple can master the art of crediting. If you are really that good, you can even earn money while you are in debt. (interest-included).

    Anyway, currently, I still believe Cash is King.

    Reply
  9. Rodney

    personally I’d rather put it into manage fund. you need at least 1000 to start and put in 100 every month. I did that in uni and the return was way better than putting into FD or high intrest rate account. FD was 5% in 2001 and manage fund was 7 to 8%. Oh and it was tax free cause i was a student! ;)

    Reply
  10. Rob

    trying hard to limite my stash of credit cards to 2. I’ve been told if you have 4 or more then you’re dodgey :).
    my tip. keep the plain vanilla edition credit card because it has lower fees. the platinum card may look flash and impress your mates but also makes you a target for credit card fraud when you go travelling. you can get the same credit limit on the commoner version card and you never use the extra services of the gold/platinum/Amex black anyway.
    okay maybe an Amex Black card would be cool to have :).

    Reply
  11. xiaoboy

    Mate,

    you gotta look at the rewards too. While Virgin CCs are decent, they got crap rewards. What you want is to gain Frequent Flyer points & ignore any other redemmable items. AMEX’s paid off for couple of my flights already. My suggestion, if you’re working or affliated with some society (i.e. Chartered Accountants), check with them as there’s always associated CCs already included the membership fees. If student, check the local banks, there’s always student option packs that include annual fee waiver.

    On the interest note, it’s nice to earn all that money but don’t forget the Australian tax component to it especially if you’re working & you’re a non-resident. There are ways to workaround the system so be innovative !

    Reply
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  13. mooiness Post author

    ront: shhhh.

    Rob: screw trying to be impressive. What’s more impressive is having the money instead of paying unnecessary fees to have one of those cards.

    xiaoboy: rewards and such are better for the big spenders rather than others. And yes we do pay taxes on the interest earned, but extra money is still money. With my method, you don’t have to spend to save which is what most rewards system try to make you do.

    Reply
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  15. mooiness Post author

    MamaDuck: it’s true ain’t it? thanks for dropping by!

    Jersey Girl: revolving credit ain’t never a good thing. thanks for the compliment!

    Nadia: thanks for that bit of info! Bankwest’s site is a bit misleading then, they don’t explain it too well. But yes, getting interest on money that is going to be spent anyway is the whole idea.

    Reply
  16. Nadia

    I’m actually using the Bankwest Telenet Saver Account – it’s not just for businesses! The introductory offer is 6.6% interest for the first year, and 5.8% I think, thereafter. Last month alone, I earned 10 bucks in interest!! (yes I’m easily excitable)

    It’s great because you get unlimited internet transactions on it, so every month, I transfer most of my salary into that account. Then only as and when I need it, I transfer the money into the spending account. That way, similar to what you’ve written, I earn daily interest on money which is going to be spent… before it’s spent. =)

    Reply
  17. Laurie

    Interesting concept. Worth a try.

    BTW, I love the graphic you’re using for the header of this blog. If you’re the artist, you should submit some of your work to my site. If not, pass the word on. I’m currently looking for artists.

    Reply
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  19. michellesarah

    Thanks for the tips mooiness!

    We’re actually just in the process of refinancing our current mortgage and buying another block of land – and as part of the refinance we’re going for a mortgage offset and using the plan you’re talking about. I’m cool with it, but the partner is stressing about using credit.

    Despite the fact that I’m trying to explain that it’s not REALLY credit, because we have the money sat there, but it’s just a different way of spending and trying to save. We’re offsetting against the loan for the block, so when we sell this house we’ll use the profits to offset against that mortgage while we’re building and pay tiny interest on the loan while we wait.

    So clever!

    But yes, you have to be controlled. We’ve been controlling our money for a few years now and doing quite well so I’m confident this method will work for us – it’ll just take a little getting used to.

    Reply
  20. mooiness Post author

    michellesarah: excellent idea! If it helps any, you can explain to the hubby that a CC with a 30-55 interest free period is like a personal loan with no interest. And you then use that personal loan to gain a little interest off of it. In your case, you are using it to offset the mortgage.

    And you are right – CONTROL is the key. :)

    Reply
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