Let me start with a bit of background information to motivate the need for a joint account dedicated to the purpose of savings.
Some time back, when we were just starting our family, we started to feel the extra burden of having to pay household bills. Yes, those invisible blood sucking creatures that drain ur finances without you even realizing. Read more here. We didn’t notice the impact of these monthly expenses when we were young becos we’re living under the protective wings of our doting parents. It’s a bit different now that we’re living on our own…
To make accounting more systematic and transparent, we started a joint account for the purpose of keeping track of all these expenses. This account is termed as a joint expense account. But therein lies the problem. It’s an expense account. Meaning that, we draw our food and grocery expenses from there, pay our household bills from there, pay our credit card bills from there, buy investments from there, service car loan, etc.
The big problem with this is, how much are we actually saving on a month to month basis? It is difficult to answer such a question using solely our expense account which has a constant cashflow.
The solution, we needed to open another joint account, dedicated to the purpose of saving. Saving money is both a good habit and also necessary, just read any personal financial guide.
There is actually another motivation for opening this new joint account. That is, with the recent economic turmoil and uncertainty, with big name companies such as Lehman Bros collapsing, we wanted to be on the cautious side of things. And knowing that it is under MAS policy that each deposit-type account in Singapore is insured for up to 20k per account (I think it’s called the Deposit Insurance Scheme), we decided that we needed to diversify our bank deposits and not keep everything in one basket. Yes, not just investments, bank deposits need diversification too.
And so, after a lazy effort of searching for the best yielding deposit account, we decided on the Citibank Step Up account. It’s the second bank we surveyed, the first being HSBC. The attractiveness of this deposit account is that it increases your interest rate for every month that your balance is higher than the previous month. Actually, it’s more complicated than that, please read more details from the Citibank website. So, the basic idea is, if your minimum account balance is consecutively highly than the previous month for 12 months, you will receive the maximum possible interest rate of 0.75% pa (as of 26 Jul 09). And once you have accumulated the maximum 12 ‘Step-ups’, you just need to maintain a minimum of 20k in that account to continue enjoying the maximum interest rate. For comparison, DBS Savings Plus account gives 0.25% pa for balance above 50k (as of 26 Jul 09).
This suits us perfectly. Since what we wanted was a joint account for the purpose of saving money, that meant that from our perspective, we will only deposit money in and will not withdraw any money out (except for really really rainy day situations). So, we’re all set to receive the maximum interest rate after 12 months if we make a disciplined monthly contribution to this account. Thereafter, we can top up the amount to 20k at the end of 12 months to continue enjoying the benefits. And since it is insured up to 20k, we’ll withdraw any excess (0.75% of 20k = 150 per annum) and put it into another deposit account with another bank. This way, no worries about bank failures.
So that’s our plan. And it was put into action since Oct 2008; that’s about 8 months ago. Yeah! Since we started, we have been very disciplined and contributing monthly to this account. In addition, we also deposit all our government gifts (Growth Dividend, GST Offset Package, etc) and our stock dividends into this account to make it grow faster.
Now, it is about time we start sourcing for another savings account. We’re currently quite keen on the OCBC Monthly Saving Account. The currently promotion is 1.08% pa with a monthly contribution of 800 for 24 months, which works out to be 19200 in principal amount, just shy of the 20k insured mark. Looks promising.