What a thrill it is to receive your first paycheck! Now you are finally an independent and self-sufficient adult. You are no longer a dependent who needs pocket money. Of course, you!
There might be a list of things you’ve been waiting to buy – that Dyson hair dryer or a new Bose sound system – but be careful not to start spending carelessly or you might find your money running out faster than the Amazon rainforest (sob).
The first thing you should probably do is exit the savings account with that squirrel book you’ve had since you were a kid. You need the right savings account that will help you save smarter. It can be overwhelming, given the myriad of options available.
Here are seven factors to help you decide how to choose the best savings account for your needs:
1. What are realistic interest rates?
The maximum interest rates advertised by banks can be misleading as there are many transactional criteria you must meet before you are eligible. You probably need to trade large amounts or keep huge sums in the savings account to earn something like 3.88%.
Rather than going for the advertised rates, it’s actually better to figure out which stocks are within your means and the corresponding interest rate you can get with them.
Fortunately, banks have made this easy. If you go to their websites, there are interest calculators that show you how much interest you can earn based on the criteria.
Some actions can be done easily, like crediting your salary, while others like spending a minimum of $500 per card per month, or having a minimum balance of $10,000 in your account can be demanding for you as a first employee.
Suppose you are a first employee earning $2,500. You spend $500 on your credit card primarily to eat and shop online. You submit at least one recurring bill to GIRO – for example, your phone bill.
Here are some calculations of what you will earn based on this realistic financial situation:
|DBS multiplier account||OCBC 360 Account||UOB One account|
|Transaction categories (per month)|
|Credit card spending||$500||$500||$500|
|Monthly mortgage payments||NOT||NOT||NOT|
|Interest rate pa||0.45%||0.45%||0.50 percent|
As you can see, you can earn up to 0.50% per year if you use one of these savings accounts.
DBS Multiplier Savings Account: There is no minimum amount required in each category, as long as your total transaction is over $2,000.
It reduces a lot of stress on your end. No need to spend on nonsensical things if you don’t meet the minimum credit card spend required by the other two accounts.
OCBC 360 Savings Account: Crediting a salary of at least $1,800 per GIRO gives you 0.3% per year and saving at least $500 gives you an additional 0.1%.
Although OCBC 360 seems to lose in the above comparison table, if you exercise discipline by increasing your account balance by $500 from the previous month, you get an additional 0.1%, which can increase your aggregate earned interest.
UOB ONE Savings Account: If your take home pay is less than $2,000, UOB One gives you 0.25% interest if you spend $500 on your credit card. Crediting at least $1,600 and spending at least $500 earns you 0.5% per year, which is the DBS multiplier.
2. What are your financial goals?
To save well, you must set specific financial goals. Are you planning to fund a college pursuit, a wedding ceremony, a dream car, or your first BTO?
Besides these goals, one of the first things you should do as a first employee is to build an emergency fund. Indeed, you will soon be faced with more responsibilities: getting married, having a child and soon taking care of elderly parents.
You must protect yourself from hypothetical situations where you could lose your job, get hurt, get sick or when your loved ones go through these difficult situations.
After defining your financial goals, it would be easier to put your plans into action with the right savings account.
Automation is a simple way to organize your finances so you don’t forget them. Insurance premiums and telecom bills can be set to GIRO payments, while some savings accounts have automation tools like OCBC savings goals.
OCBC Savings Goals automatically deducts a certain amount of savings each month, so you can have peace of mind knowing you’re saving without doing anything.
Your savings will be “locked” until you decide to release them. It forces you to be disciplined and takes away the temptation to touch your savings until your target amount is reached.
3. What is your financial personality?
If you are naturally very disciplined with your spending and savings, and have no trouble withstanding peer pressure, good for you! Yes
ou can probably get by fairly easily with just one savings account, although it would be helpful to have a tool like OCBC Savings Goals.
However, if you have limited self-control when it comes to spending money, you can help yourself by dividing your savings into two accounts.
You can use the DBS Multiplier / UOB One / OCBC 360 account for day-to-day expenses, but have a second savings account with another bank.
This second “hidden” account should be a simple savings account with no barriers to cross, and ideally with another bank to deter you from accessing the money too easily.
Some good options are the POSB SAYE account or the new Standard Chartered JumpStart account, which are only open to young people and offer up to 2% interest per annum.
If you are too old for either account, you may consider opening the CIMB FastSaver or UOB Stash account. Either will earn you 0.8-1% interest per year, depending on how much money you invest in it.
4. Do you have a favorite credit card?
You can also think of a savings account in connection with your favorite credit card.
For example, if you already have a UOB credit card because it rewards you for eating out, spending $500 a month on it will immediately give you 1.5% of your savings in a UOB One account.
Might as well make the most of your spending and earn interest, right?
Or maybe you’re not a big spender, but don’t mind slowly earning air miles with your occasional spending. In this case, the DBS Altitude credit card would be a great pair with your DBS Multiplier account.
Neither has a minimum spending requirement, but as long as you swipe something on the card each month, you’ll earn extra interest on your savings.
The thing is, your current spending habit may already qualify for some savings accounts. Don’t waste it and use it to get a good interest rate on your savings!
5. Do you travel often?
If you’re more of a jet-setter, or if your first job requires you to travel frequently for business, some bank accounts, like DBS Multiplier, allow you to save in multiple currencies.
DBS supports 12 major foreign currencies including AUD, JPY, HKD, THB, USD and more. Your account acts as a virtual currency exchange. For example, if you exchange S$1,000 into AUD today, the resulting AUD is stored as a separate balance in your “multi-currency wallet”.
(Note that you will not receive interest payments for most foreign currencies.)
You can also link the DBS Multiplier account to a DBS Visa debit card while traveling, so you can transact abroad without incurring conversion fees.
6. Is the user interface intuitive?
Many of us are banking digitally these days, so the accessibility of the bank’s digital platform is also important.
The three biggest local banks – DBS/POSB, UOB and OCBC – are quite comparable in terms of iBanking interface and functions, but the same cannot be said for banks like CIMB.
People who have tried CIMB Clicks iBanking interface generally say that it is not as user-friendly and intuitive.
Moreover, the transfer of funds through PayNow is quite important in the current era. But don’t worry, nine participating banks use it, including Citibank, BOC, DBS/POSB, HSBC, OCBC, Maybank, UOB, SCB and ICBC.
7. Does the bank have a good ATM network?
Although digital payment and banking is common these days, there are still places that only accept cash.
The best banks with the most extensive ATM networks are of course the three local banks: DBS, OCBC and UOB. However, Citibank also has a decent presence at many MRT stations these days.
If need be, you really don’t want to put all your money in a bank like Maybank or CIMB, because chances are there won’t be an ATM in sight.
However, it’s not as bad as it looks. There is an atm5 network in Singapore which Maybank, Bank of China, Citibank, HSBC, Standard Chartered and State Bank of India use.
If you are a customer of one of these banks, simply look for the atm5 mark at the ATMs of these banks and you will be able to withdraw money without additional transaction costs.
There is also a soCash service for withdrawing cash from more than 1,000 stores.
This article was first published in MoneySmart.