Do you have some cash lying around and wish you can do more with them?

A friend introduced me to this bank account yesterday. While it’s been in the market for about a year already but I didn’t really paid attention to it. So upon his advice, I decided to check it out.

Before I go any further into this and while I find that it does have its advantages, upfront, I must say that this may not be for everyone. It really depends on one’s lifestyle and finances in my opinion. I’ll summarise who I feel may not be suitable for this at the end of my post, so read on!

Okay, let’s take a look at this Bonus$aver account from Standard Chartered Bank, with a Bonus$aver MasterCard debit or credit card (Bonus$aver cards) linked to it.

Under usual circumstances, this account would earn you 0.10% pa for deposit balance of less than $200,000.  And 0.20% for deposit balance of $200,000 and above. Nothing much to be excited about.

But if you charge $500 to the linked Bonus$aver card in a calendar month, you will earn 1.88% interest pa instead on the first $25,000 you have in your account. In other words, you get an extra 1.78% interest pa.

If you are one who is always on the lookout for better deals and higher interest bearing accounts. This is really one option. For those who are risk averse or familiar with fixed deposits, you’ll know that 1.88% is a very attractive rate.

Some of you, especially those who don’t believe in free lunches, may ask – What’s the catch?

I may be missing the catch but to me, it’s basically a promotion to entice people to sign up and to encourage spending on the Bonus$aver cards. Having said this, there is still some cons to this and below I list the cons.

Being the-optimised-use-of my-credit-card person that I am, I know that $500 spending on most cards would give me a 0.5% “return” thereabouts normally. Spending on Bonus$aver card only earns a higher interest on your deposit balance of your linked bank account, and no other privileges. In other words, for me to switch my $500 spending to this card, I would be giving up a potential of $2.50 “return”. I call this an opportunity cost. In a year, this would be a $30 opportunity cost for a $6000 yearly spending. In this case, I’m assuming all my expenses only qualify for a 0.5% “return”.

So in order to “breakeven”, I need to make back this $30 from the extra interest. If I cannot, then it’d turn out more detrimental to my financial health than being beneficial. At 1.78% extra interest gained, I’ve calculated that a minimum of $1700 is needed to maintain this account just to offset this opportunity cost. Any amount above $1700, would then be the “surplus”. And remember, 1.78% extra interest is only for deposit balance of up to the first $25000, so there is a cap here.

And because of this opportunity cost, please do not overcharge your credit card expenses to this card as any spending above $500 charged to this card gives no benefit at all.

My example is only based on a credit card spending return of 0.5%, just to give a guideline. Some may give lesser return, especially if your card is a points system card, some may give higher returns. So you may need to adjust to your own situation. I’m also assuming that the account is bearing a normal 0.10% pa interest to give the extra 1.78% interest.

And because there is a $3000 monthly minimum balance to maintain to avoid paying unnecessary penalties (although this requirement is waived until June 2013), my advice for those people who don’t really like keeping track and prefer to be ‘spoonfeed’, just maintain at least $3000 in this account. That way, you will know you will be in ‘surplus’ mode.

In addition, there is a promotion currently, until 31 March 2013. Opening this account or topping up this account with funds of a minimum of $50000 will earn you a $200 cashback. This is good money, considering you’d probably have to spend $40000 on a card that gives you 0.5% “returns” to earn you the same $200. And end of the day, you get $200 and you still have $50000 in your possession.

Alternatively, if you do not have $50000, deposit any amount and you will still be eligible for $100 cashback.

If the above had made you ‘blur’ in any way, then check out the summary below.

This may not be for you if: –

1) If you do not have savings, or have savings of less than $3000 in the account after June 2013.

2) If you are not able to spend $500 monthly and on a credit card.  As usual, I do not encourage unnecessary spending just to clock the quota. As far as I can see, there is no disadvantage if you can’t hit the $500 spending requirement, you are just not able to take advantage of the benefits, that’s all.

3) If your spending can earn you more than 1.88% returns using another card. For example, spending on petrol usually will give a higher return using certain cards.

4) For those who may already be earning more returns from various other investment tools, you may not necessary want be bothered about this.

5) For any reason, you may not want to open a Standard Chartered bank account or unable to (such as canceling your account and re-applying again), therefore you would be unable to take advantage of this promotion.

This is good: –

1) If you have cash lying around in the bank that’s doing nothing except ‘earning’ the normal interest rate. It’d be best if you have $25,000 maintained with this account. Also, consider depositing $50,000 to optimise the cashback promotion.

2) As the money in the bank account still gives you the liquidity in case of emergency.

Some other usual notes, you’ll need to keep the account for 6 months before closure to avoid paying penalties. Do ask about these information from the bank branches.