Cash Management

Question

Cash management with ‘on call’ accounts.

My husband and I are retired and we both receive a State pension from the UK and small private pensions from the UK as well, which are both direct credited to our bank in NZ$.

We also have on average 4/5 smallish amounts credited monthly to this account which is an ‘on call’ account but have to have $5000.00+ in the account and funds can only be transferred into our cheque account by 'phone, internet or going into the bank.

We can also pay in cheques at the bank. This only pays about 1% interest but pays 2% for balance of over $20,000.00.

Do not really want to change banks as would have to arrange for the UK to change accounts and the UK State Pensions are terrible to deal with from here.

Your recommendations would be appreciated

Regards

Suzanne

Answer

With a growing range of both cheque style and cash management ‘on call’ accounts being offered one needs to read the fine print more than ever.

On top of a careful reading of any application forms, to make the most of the modest interest offered on these ‘on-call accounts’ you need to be active in the management of your cash.

Many folk fail to make even a casual attempt to maximize the interest income gained from spare cash. This is much to the banks liking by having ‘free’ money and the investors significant loss.

You suggest that there is some monthly activity, both debit and credit, to your current account. Many higher earning savings type accounts limit the monthly activity to one or two events per month, beyond that the charges steeply increase or the interest is reduced.

Nearly all financial service providers have some form of cash management accounts. It takes time to really understand them all so take some impartial advice, it will save you time and money.

As a guide look at how the interest is applied, as well as the rate. You should be looking for these attributes; such as with Macquarie’s Gilt Edge Access account;

1. Daily interest paid quarterly (on the closing balance every day, not the lowest point in the month), free of resident withholding tax. 
2. Free automatic payments and direct debits.
3. Free cheque and deposit book.
4. Monthly statement.
5. Internet access.
6. Competitive interest rate (around 5.30% gross per annum at the moment) 
7. Low minimum balance requirement without imposed interest or fee penalty if you drop below the threshold during the month.

It is little benefit having a minimum balance sum of say $20,000 to achieve a one or two percentage point increase in the interest return or fee reduction.

Take the majority of these funds and invest it elsewhere for a much greater rate of return, say 7.00% plus on call – or up to 8.75% gross per annum for 15 months.

You suggest you are not keen to try to improve your position because of the difficulty dealing with the UK state pension office. Yes, they are slow in our experience but nevertheless your cash management is costing you dearly over time, so it is well worth the hassle or paying somebody to do it for you.

Original Article published October 2005