Banks - gotta love 'em

[turtlemichael]

I am in the fortunate position of not having a mortgage (it happens as you get older and the mansion gets paid off. All the young whipper snippers here probably don't realize that they, not the bank, will own it one day ). In fact I have some money on term deposit. I won't say Which Bank.

Two days ago the term expired but I was prepared to roll it over. I had resigned myself to a substantial drop from the lofty rates it enjoyed from 12 months ago. I contacted the bank this morning after I saw the new rate on line which was well below even what I expected.

"No problem sir." Five minutes later the rate had gone up 2%, the term had been changed to something that better suited me and they had also found, unprompted, an extra 1.5% for our regular internet account.

So, two points. The rate from two days ago appears to be a try on. Don't accept the first offer. Second, banks appear particularly open to negotiation at the moment as they try to hang on to your money. Always talk to them. The outcome for me pays for a decent trip.

 

[drron]

So that's why they cant pass on the full rate cut.

 

[turtlemichael]

So that's why they cant pass on the full rate cut.

I'm trying to not feel personally responsible

 

[Warks]

Who said they're a colluding cartel? Only the NAB decided to keep the whole 0.25%. The others are throwing away 0.1% of profits that their shareholders would have wanted them to keep no doubt. Being money-grubbing does a lot for their reputation and fulfills their corporate responsibility charter no doubt.

Every bank employee probably has to carry a laminated card in their wallet which lists their "core values". What do you think they would be?

 

[RB]

Don't see me as a defender of the banks BUT
Is this any different to reading the catalogue of hardly normal, good guys etc then going in & screwing them down further?
I believe most of us in some way have some exposure to bank stocks via super.

 

[JohnK]

My current term deposit with Which Bank is due to mature soon and I will not renew it. Instead the money will be parked in the Citibank Readycredit account and with a few creative balance transfers through the year I should get an effective interest rate of ~40% per annum and I don't need to pay tax on this amount either. Should help pay off the credit cards a little quicker.

Just need to make sure that I do not have access to the funds in the Citibank Readycredit account, until it is time to perform the creative balance transfers, and waste it on gambling and overseas trips....

 

[RB]

My current term deposit with Which Bank is due to mature soon and I will not renew it. Instead the money will be parked in the Citibank Readycredit account and with a few creative balance transfers through the year I should get an effective interest rate of ~40% per annum and I don't need to pay tax on this amount either. Should help pay off the credit cards a little quicker.

Sorry John I believe you are deluding yourself if you think you are getting 40% in "real terms". Perhaps you are talking being 40% better off than the worst case position of maxed out cards & playing around with transfers. Zero balance is a real situation to strive for.

 

[JohnK]

Sorry John I believe you are deluding yourself if you think you are getting 40% in "real terms". Perhaps you are talking being 40% better off than the worst case position of maxed out cards & playing around with transfers. Zero balance is a real situation to strive for.

You are entitled to disagree but I am effectively getting ~40% return on the term deposit about to mature. If I renewed the term deposit I would have gotten ~4% interest and then paid 48.25% tax on top of that. If I put the money into a credit card and using creative balance transfers then I am saving the equivalent of ~40% worth of interest payments on credit cards which is ~25% of my total interest paid on credit cards a year.

Who cares whether I "actually" get ~40% return on the term deposit, an interest rate of ~78% if you consider tax, from the bank or I save the equivalent of ~40% on credit card interest. In my situation they are both exactly the same thing. A ~40% return! Deluding myself? I think I am doing quite well trying to reduce my credit card debt. Anyway....

 

[james4321]

JohnK I find your maths difficult to follow, too many %'s!!! But as a general principle, holding money in a deposit account at 4% while carrying a credit card debt at something around 20% for the past year seems to me not to be very good economics?

 

[JohnK]

JohnK I find your maths difficult to follow, too many %'s!!!

James why do you find my maths difficult to follow?

Just as an example assuming a general interest card rate of 19.99% and a balance transfer rate of 5.99% and a term deposit of $10,000.

• Now take the $10,000 and deposit it into a credit card account A.
• Then do a balance transfer from credit account A to credit account B and receive a balance transfer interest rate of 5.99% for 6 months
• Then do a balance transfer from credit account B to credit account C and receive a balance transfer interest rate of 5.99% for 6 months
• Then do a balance transfer from credit account C to credit account D and receive a balance transfer interest rate of 5.99% for 6 months
• Then do a balance transfer from credit account D back to credit account A and receive a balance transfer interest rate of 5.99% for 6 months
• Now the money in credit card account A is saving an interest rate of 19.99% for the next 6 months

Cleanse and repeat 6 months later as many times as is necessary and before you know it you have saved ~40% a year on interest charges. OK not the exact representation but I think it quite clear the amount of money one can save. But then again maybe I am just a moron and have no idea what is happening and I should just take the easy way out so I can return to Thailand 4+ times a year in the near future on my more than reasonable salary struggling to repay my credit card debt....

 

[russ]

40% is nothing - I'm getting a 400% return by not flying to the USA and taking out a Payday loan!

Hidden Costs: Payday Loans - FOX23 News

 

[edman]

You are entitled to disagree but I am effectively getting ~40% return on the term deposit about to mature. If I renewed the term deposit I would have gotten ~4% interest and then paid 48.25% tax on top of that.

You mentioned in another thread that your taxable income was around 10k so how do you get taxed at 48.25% when at that level it is nil? The current top rate of tax is 45% plus medicare levy of 1.5% and a further 1% for surcharge if you don't have medical insurance?

 

[cove]

The next 2 months will be very interesting for the big 4 banks.
Analysts have Westpac dropping at least $3 billion in their latest half year on bad debts but they should still be quite profitable as their margins are good.
Now if we share these losses on bad debt write offs equally between the big 4 the that is $12 billion in 6 months.
It is hard to say if you should buy bank shares now or wait for their reports.If their write offs are bigger bank shares could fall again.If not then these shares will be out of the woods.
I am getting 2.97% and paying 9.21% plus fees if ever I use their money.
Time to become a bank? Or a shareholder?

 

[JohnK]

You mentioned in another thread that your taxable income was around 10k so how do you get taxed at 48.25% when at that level it is nil? The current top rate of tax is 45% plus medicare levy of 1.5% and a further 1% for surcharge if you don't have medical insurance?

I am sorry but did I mention that I was out of work ~12 months whcih would make my 2007-2008 taxable income ~10K? But it won't be ~10K it will be just about enough so that I actually pay tax.

I did start a new permanent job, in Brisbane of all places, in July 2008, hey new financial year, and it has been so long since I was employed full time and completed a tax return, that I assumed the top tax bracket was still 48.25%, 47% tax plus 1.25% medicare levy, I have had Medibank private health insurance since the govenrment wanted an extra 1% of tax for not joining and I also payed the 15% super surcharge when it was in place in the 90's. Sorry if I have confused anyone but you can understand where I have gone wrong.

Please do not question the details I have provided. I am a person who is straight down the middle who has revealed a whole lot more than anyone else will reveal in a lifetime. But anyone who has met me will know this anyway....

 

[edman]

Please do not question the details I have provided. I am a person who is straight down the middle who has revealed a whole lot more than anyone else will reveal in a lifetime. But anyone who has met me will know this anyway....

Not questioning, just trying to understand your calculations like others here were as well. No offence meant!

 

[edman]

Cleanse and repeat 6 months later as many times as is necessary and before you know it you have saved ~40% a year on interest charges.

Johnk I agree with your reasoning and have actually done this myself in the past to save money on my mortgage when I still had one, except that it was with nil balance transfers.

However I think there is a flaw in your maths. If you are paying 20% pa on your visa and 6% on a transfer, your saving is 14% per annum. But if you do it twice a year it doesn't make your saving 28% (or 40% as you suggested)? Unless I'm still not understanding your maths, in which case just put me in the same basket as james4321

 

[JohnK]

However I think there is a flaw in your maths. If you are paying 20% pa on your visa and 6% on a transfer, your saving is 14% per annum. But if you do it twice a year it doesn't make your saving 28% (or 40% as you suggested)? Unless I'm still not understanding your maths, in which case just put me in the same basket as james4321

I don't know how to explain it any easier. I have a spreadsheet with all the details and the final result is a saving of x,xx_ interest at the end of the first year which is 40% return on the term deposit principle. I made a mistake earlier but I will try to explain it again.

• Transfer money from Citibank Readycredit to CBA Low rate Mastercard (No saving)
• Balance transfer from CBA low rate Mastercard to HSBC Low rate Visa (Balance transfer rate of 5.99% for 5 months, normal interest rate 19.99%)
• Balance transfer from HSBC low rate Visa to CBA low rate Visa (Balance transfer rate of 5.99 for 6 months, normal interest rate 19.99%)
• Balance transfer from CBA low rate Visa to Citibank Readycredit (Balance transfer rate of 5.99% for 5 months, normal interest rate 19.99%) but also consider money sitting in Citibank Readycredit is also saving 17.99% interest rate

This process will take approximately 3 weeks to complete and I am getting an effective interest rate of 40% on the term deposit principle. In 6 months time I will be ready to start the process again and hopefully low balance transfers exist.

I am not deluding myself. I am also not bragging because this is actually a serious mess I have gotten myself into and all I am trying to do is get back out the huge hole slowly as best I can. There is a less painful solution which I am trying to avoid....