So you finally got around to signing up for that low fee, high interest bank service – now what? Most likely you’ve got most of your money in your chequing account, which barely pays any interest. At the same time you try and scrounge together a few dollars to put away into your high interest savings account. The high interest account doesn’t seem to be having the impact you thought it would since most of your money is in the chequing account. The solution is simple, keep all of your money in the high interest account and only move money over to the chequing account a few days before you need the funds for bills. Since bank interest is usually calculated daily and paid monthly, every day you keep your money in your high interest account is more money you are earning. Some people will say the interest isn’t worth the time but I beg to differ. The simple answer is to automate your transfers between accounts. Once you get it set up then you spend very little time having to bother with it again. Just follow the guidelines below and everything will go smoothly.
Categorize and classify your expenses – The first thing you need to look at is categorizing your expenses, which I hope is already done because you have a budget setup. For us we have 6 major expense categories: Cable bill, Phone/Internet bill, Mortgage, Condo Fees, Dining out, and Groceries, The first four that we categorized were classified as fixed because the payment comes due relatively at the same time every month. It’s these items that we can setup the automatic transfers for and never look back except the count the added interest. Dining out and groceries were classified as variable because the expense happens over the entire month, unless of course you happen to buy a months’ worth of groceries on one day. For variable you just pay with a credit card that offers rewards and then pay the card off at the end of the month. This will allow you to earn both rewards and interest on the grocery bill and the dining out bill. Now you might ask “What if I don’t have a credit card?”. The best option at that point is to transfer all of the variable expense money at once to the chequing account.
Give adequate time – This is extremely important. You should always give yourself some extra time for the transfer to happen. The last thing you need is to miss a payment because you didn’t allow for enough time for your transfer to go through. Our financial institution requires one day to transfer funds from our savings account to our chequing account. On top of that it usually takes 2 business days for a bill payment to process. That’s 3 days but if you want the extra security then give yourself 5 days. For us, our mortgage comes out every second Friday so the money is always transferred to the chequing account on the Wednesday.
Always have buffer cash - Always have some extra cash sitting in the chequing account. We usually have $200 in ours. This is important if you have any miscellaneous or unforeseen expenses. For example we go to this breakfast spot that only takes cash so before we go we usually hit up a bank machine.
Have overdraft protection - This is your final line of defense. Mistakes can happen and the overdraft protection is your fall back plan. A small overdraft fee and some interest is nothing compared to a $40 dollar insufficient funds charge. As long as you don’t automate too tightly you will never have to use this.
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