You work hard for the money that goes into your bank accounts, so you should make it a priority to make sure that your money then works hard, in return, for you. This involves ensuring that you are taking advantage of all the tax concessions that you are entitled to, getting a good interest rate on your savings accounts, and ensuring that you minimise charges on your checking/current account.
If someone came up to you and said that they’d give you a choice between earning money tax free or giving a portion of your earnings to the tax man, you’d undoubtedly choose the tax free option. It’s surprising, therefore, that not everyone takes advantage of the tax free concessions that are available on savings accounts. In the UK, for example, individuals can deposit up to £5,340 (as at 2011/12 tax year) into a tax free ISA every year but not everyone even has an ISA.
Savings interest rate:
With savings accounts and checking/current accounts, you lodge money with the bank for safe keeping and they get to use some of that money to fund money making ventures. The reward to you from the bank is that they promise to pay you creditor interest as long as you keep your balance above zero. However, not all accounts pay the same interest rate and you need to make sure that you’re getting a fair and competitive rate on your funds.
Checking/current account benefits:
Often when we start out with a bank account, we are just happy to be approved for basic account facilities. However, as you progress in your career and prove yourself capable of managing an account prudently, you should feel entitled to expect a fuller range of banking benefits. For example, many people would qualify for a debit card and/or overdraft but don’t have these because they’ve never been made aware that they would qualify for them.
There’s also been a trend (in the UK at any rate) for banks to promote packaged current accounts, where a monthly subscription fee is collected and, in return, the account provides access to a range of value added features. For example, maybe the packaged account holder may be entitled to get free car breakdown cover, or to discounts at selected restaurants. However, the onus is usually on the customer to utilize these benefits. Therefore, if you have an account that entitles you to useful benefits, then it’s important that you make full use of the benefits that you are paying for.
Setting up alerts:
Increasingly, banks are enabling customers to set up text alerts or e-mail alerts on their accounts. For example, you may be able to set up a triggered alert to tell you when your checking/current account balance drops below 100 or goes above 800. Receiving one of these alerts can then remind you to either add funds to your account to avoid going overdrawn, or move funds to your savings account to maximise interest.
Using Online Banking and Mobile Phone Banking:
All banks these days offer Online Banking services and most are now setting up Mobile Phone Banking services. These offer you the ability to view and transact on your account from anywhere and at any time of day. Using them will save you time and will mean that you don’t need to take time out of your day to visit a branch. Online and Mobile Banking services are typically free to use, and can help you to maximise value from your accounts. For example, going into your checking/current account on pay day, you can immediately transfer money across to your savings account so that you maximise your savings interest.
Make sure your accounts are best suited to your needs and circumstances:
Not everyone is the same and therefore the types of bank accounts that will be suited to one person will not necessarily be best for another person. Let’s illustrate this with an example.
Someone in their twenties who is busy financing a mortgage may wish to put money into a savings account but may be conscious that they may need to get access to the money at short notice. It may therefore be advisable to put the money into an instant access savings account rather than locking it away for a period of time in a fixed rate bond or a notice account. Someone who is in their fifties, however, may have paid off their mortgage and may be perfectly happy to take a longer term view with a proportion of their savings. They might therefore wish to put money into a 3 year fixed rate bond in order to benefit from a higher rate of interest.
Similarly, your choice of checking/current account may differ depending on what features are most important to you. Students, for example, will typically be more concerned with getting a good overdraft deal than they will with how much creditor interest the account might pay if they maintain a positive balance on the account.
Why making your accounts work for you matters:
Many of us muddle our way through life from a monetary perspective. At some point we’ve opened a checking/current account and a savings account but it may be years since we checked what interest rate we’re receiving and we may only occasionally remember to transfer money across to our savings accounts. Provided your income is relatively high, this approach may not seem too much of a problem in the short-term. You get by, with just the occasional bank charges when you accidentally go overdrawn. However, in the long-term this financial indifference is extremely damaging. Set in a context of gaping holes in pension provision and world recessions, the failure to adequately plan and organize your finances is likely to materially impact your future wealth. We should all have the aim of being able to retire as soon as possible and knowing that our retirement will be comfortable. However, unless you earn millions, obtaining these goals requires effort and a key part of that is ensuring that your money is working really hard for you!