HAVE CAKE AND EAT IT TOO
EARN BANK INTEREST ON SALARY WHILE SPENDING ALL YOUR SALARY
Are you spending all your salary and you are getting nominal interest on your savings bank account ? While we encourage you to reduce expenses , we are showing a way with 4 simple steps by which you will earn higher interest almost equivalent to bank deposit rate even when you continuing to spend as usual most of your salary . Initially the idea may look crazy to have fixed deposit and overdraft against the same on same day . As you see in the case study , you will have amazing results .
1. Open a Fixed Deposit for amount of salary you get in to account on the day of salary itself . So all your month's salary goes to Fixed deposit .
Presently you can earn 8.5% to 9% pa on 1 year deposit
What I will eat during the month and how I live without salary ?
2. Avail overdraft facility against the Fixed Deposit just opened to the maximum extent .
You can avail around 90% of Deposit amount as limit of overdraft facility .
Overdraft facilities normally carry an interest of 1% to 2 % more than F fixed Deposit interest rates .
Utilise the facility for your expenses
3. Avail credit card facility from the same bank where you are drawing salary. Obtain credit limit equivalent just to one month's salary .
Normally banks do not charge either joining fees or annual fees for their own customers . So you get free of cost . Otherwise there are various banks which issue credit cards free of cost .
4. Have your standing instructions registered with the bank to deduct
100 % of your card dues on due date itself from your overdraft account .
You will have no head ache of delayed payment and penalties for delayed payment .
You will start earning interest on deposit from the very first day . Now postpone your expenses as much as feasible without attracting penalties / charges for delayed payments .Some simple ways to delay your payments are
1. Reduce cash holding to the minimum required
2. Postpone your payments to near due dates .
3. Utilise your credit card to the maximum extent at the beginning of billing cycle .Normally credit cards give free credit period ranging from 20 days to 50 days . If you use cards at the beginning of the cycle , you will get 50 days of free credit period . By adjusting payment days suitably , you can get get maximum number days of free credit .
Now , you have not reduced any of your expenses nor you have not paid any charge for availing the above banking facilities . See how much your interest income has gone up . I will show an example here of Mr Santhosh .You can calculate how much you can gain in your salary and expenses circumstances .
Click Here and go to Personal Finance Page for Tips on Managing expenses
Case of Mr Santhosh , an young marketing executive in Bangalore
Mr Santhosh is earning a monthly salary of Rs 50,000/-. He has come new to Bangalore and he wants to live full and he spends most of his salary . His expenses amount to Rrs 45,000/- pm and are spread evenly over the month . He is able to save just Rs 5,000/- at the end of month . He has got savings bank account with ABC Bank which pays SB interest of 4 % pa , Fixed deposit interest of 9% pa and charges overdraft interest of 11%pa,. They issue free credit card facility to their savings bank account holders whose salary is routed through the bank .
Interest on SB balance of Rs 5,000/- = 17.00 pm
when Mr Santhosh maintains his savings bank account alone .
Now he has accepted our suggestion and opened a Fixed deposit , availed overdraft against the deposit , obtained a credit card and has given standing instruction to recover 100% of dues on due date .
Interest on Fixed deposit of Rs 50,000/- at 9% pa = Rs 375/- pm .
Interest on overdraft at 11% = Rs 207/- pm
( on an average overdraft balance of Rs 22,500/ -
assuming he has not used his credit card at all)
If Mr Santhosh uses his credit card to an extent of Rs10,000/- and thus postpones his payment by more than one month .his net payment would be Rs 35,000/- and average overdraft balance would comedown to Rs 17,500/- . and
interest on overdraft for the first month = Rs 160/pm
Net interest income of Mr Santhosh Rs375/- - Rs 160/- = Rs 215/- .
Thus in the very first month Mr Santhosh could his interest receipt from Rs 17/- to Rs 215/- which is more than 12 times higher .
Now let us see what happens to Mr Santhosh ' s interest income in second month .
Month end balance in overdraft account is Rs 35,000/-
on getting salary of Rs 50,000/ , his overdraft has a credit balance of rs 15,000/-
Now Mr santhosh continues to spend Rs 45,000/- this month also out which Rs 10,000/- is spent through credit card .
Now Mr Santhosh's Fixed Deposit interest for the month = Rs 375/-
His overdraft interest on average balance of Rs 10,000/- = Rs 92/-
Mr Santhosh's interest income for second month is = Rs 263/-
Thus overdraft interest would go on reducing and net interest income would go on raising month after month until overdraft interest reaches zero and Santhosh would earn 100 % of fixed deposit interest .
Thus Mr Santhosh will earn fixed deposit interest of Rs 4,500/- in the year while his overdraft interest may not exceed Rs 500/- . If he continues to judiciously use his credit card and payments , his net interest income would be Rs 4,000/- .
Without reducing his expenses even by a rupee, Mr Santhosh has earned. By using his credit card more and more , he would be saving more and more .
You too can earn . try
Check up with your bankers and confirm charges they levy . Work out gains based on your salary , your expenses , spending pattern .Bankers will be happy to assist you as they will have fresh deposit , overdraft and credit card account from you . All the best in your endaevour to save more .