Bankwest Qantas Transaction Account - Beats Paying Tax on Interest.

[Renato1]

So, the subject account pays 12 Qantas FF points per month per $100 held in the account.
This means it pays 144 Qantas FF points per year per $100.

I value Qantas FF points at one cent per point for domestic travel, others value the points higher.
So in my case, I'd get an effective $1.44 per $100 per annum, or an effective interest rate of 1.44%.

Currently, the cheque account that my fortnightly money gets paid into earns next to nothing in interest, but my On-line Saver account earns 1.8%. However, on the 32.5% tax bracket plus 2% Medicare Levy, the after tax interest rate reduces to 1.179%. while at the 47% tax bracket plus 2% Medicare Levy the after tax interest rate reduces to 0.918%.

Plainly, if one is on the highest or second highest tax bracket and getting the low interest rates I get on my ready cash money, then getting "interest" as untaxable Qantas FF points instead of taxable cash, results in a tax saving - especially if one values the FF points more highly than I do.

So I've just opened a Bankwest account.
Cheers,
Renato

 

[coles525]

Every $1,000 per day = 40 QFF each day (upto 14,400 per year).

Every $10k = 400 points per day (144k per year).

 

[Sdtravel]

I have always wondered about getting an account. The 2k minimum deposit a month. What's stopping me from just having another account i just transferred 2k around back and forth each month?
There is no requirement that the money stay in there. Its a transaction account not savings.
You get no points for that but perhaps you have another few hundred dollars that stay there for that.

 

[medhead]

My [-]Bankwest[/-] Qantas CU Qantas account is paying me interest in $ and points. Not [-]sure if it's[/-] the same product.

 

[Renato1]

Every $1,000 per day = 40 QFF each day (upto 14,400 per year).

Every $10k = 400 points per day (144k per year).

I calculate a lesser figure.

12 points per $100 per month = 120points per $1000 per month = 4 points per $1000 per day.

For me, this account is good for my liquid cash. $10,000 is the most I'd ever have in it, for when I expect to pay big bills off my credit cards. Else I'm better off keeping the money in my allocated pension fund, earning higher interest tax free.
Regards,
Renato

 

[Renato1]

I have always wondered about getting an account. The 2k minimum deposit a month. What's stopping me from just having another account i just transferred 2k around back and forth each month?
There is no requirement that the money stay in there. Its a transaction account not savings.
You get no points for that but perhaps you have another few hundred dollars that stay there for that.

As I read it, there is nothing stopping you from just transferring the money across and meeting that requirement.
Only problems are,
a. You may forget to do so, and be charged $6 that month, and
b. Your money is in transit and unuseable for a day or two.

Unless one is going to play games with lots of tiny transactions as described in another thread, for typical everyday transactions the 5 FF points per transaction doesn't really cut it compared to getting half a point per dollar on most cards, or 3 points a dollar on the Amex Edge card at supermarkets. So I view this account more as a saving account than a transaction account.

One point though. There are 10,000 bonus points available for signing up by a day in January. But to get those points one has to spend $500 per month for six months. Which for me means that I will be paying for things like health insurance and utility bills on this card, that I would otherwise have been earning half a point a dollar on with my other card. So I forego 1500 points in order to get 10,000 points. Thus for me the bonus is really around 8500 points.
Regards,
Renato

 

[NoName]

There are much better ways to invest your money than earning points from the balance in this account so this part of the account is really irrelevant to me. The 5pts per transaction is goldmine though.

 

[Renato1]

There are much better ways to invest your money than earning points from the balance in this account so this part of the account is really irrelevant to me. The 5pts per transaction is goldmine though.

Yes, there are better ways of earning money, but one does need liquid funds.
It takes me nearly a week to redeem funds from my investment accounts after getting paperwork mailed out to me.

My point is that relative to what banks are offering as interest on liquid funds, this account seems pretty good in after tax terms.
Regards,
Renato

 

[bismarck]

Assuming you have one, it will be far better to put the money in an offset account against your mortgage. "Earns" an effective return of 5ish% depending on your tax rate.

Obviously not relevant if you don't have a mortgage.

 

[Benno]

While at the 47% tax bracket plus 2% Medicare Levy the after tax interest rate reduces to 0.918%.

I find it more beneficial to consider the bigger picture and look at the effective tax rate, rather than fixating on a particular income stream and allocating it to a marginal tax bracket.

For a person with a 200K taxable income, their tax+levy liability is still only about $68K. This gives an effective tax rate of ~34%. (For someone's effective tax rate to be 49%, their taxable income would be something like $1.9 million, in which case they're not going to be farting around with the kinds of low-end financial optimisations that us plebs have to.)

If 1.8% interest income is included in their taxable income, then after tax that becomes about 1.19% net.

It's also possible to get higher interest rates with online high interest transaction account. IIRC Ubank have one with that pays 3.37%, which even for our hypothetical 200k earner ends up being 2.22% after tax. (This is not an endorsement of Ubank, just an example of what's out there.)

 

[froggerADL]

I have this account and earn about 3000 points per month. I'm very surprised that the ATO allows this to be tax free. I wonder if I can get my employer to pay 50% of my salary in QFF points, tax free of course!

 

[NoName]

Assuming you have one, it will be far better to put the money in an offset account against your mortgage. "Earns" an effective return of 5ish% depending on your tax rate.

Obviously not relevant if you don't have a mortgage.

Correct. My "liquid" funds are all effectively earning >4% (untaxed) sitting in my offset account.

The he average balance of my BankWest QF account would be less than $50. It's only topped up once a month when it reaches $0 and only ever has more than about $1000 for a day or two when I'm transferring funds around to meet the monthly delist requirements. As I said, the points earn on balances hold absolutely no interest to me at all. It's the points on transactions that is where its at!

 

[Christoo]

I calculate a lesser figure.

12 points per $100 per month = 120points per $1000 per month = 4 points per $1000 per day.

For me, this account is good for my liquid cash. $10,000 is the most I'd ever have in it, for when I expect to pay big bills off my credit cards. Else I'm better off keeping the money in my allocated pension fund, earning higher interest tax free.
Regards,
Renato

That's very interesting.

There are much better ways to invest your money than earning points from the balance in this account so this part of the account is really irrelevant to me. The 5pts per transaction is goldmine though.

It all depends on how much value you place on the points.
According to an AusBT article: What is a Qantas frequent flyer point worth? - Australian Business Traveller

Qantas points are valued at a range of different levels:

As it happens, Qantas pegged its own points at 2.28c each in its recent one million points competition, but in actuality sets what could be considered a ‘base rate’ of just 0.66c per point on its Frequent Flyer store by offering $100 Myer Digital Gift Cards for 15,000 points.

12 points per $100 dollar per month would either work out at:
2.28c x 12 = $0.336 per $100 per month
= $4.03 per $100 per year
Which is a 4.03% annual tax free interest rate

or

12 points per $100 dollar per month would either work out at:
0.66c x 12 = $0.0792 per $100 per month
= $0.9504 per $100 per year
Which is a 0.9504% annual tax free interest rate

It looks like it would be fine for anything you were already planning to hold in accessible cash, but not a great enough strategy to warrant pulling money from other investment vehicles.
For me it would come down to how many points I could use and for what purpose.
I already gather enough points through my flying and credit cards for upgrading my travel.

If you could still do any-seat awards I might be tempted, but now I purchase most of my flights economy with cash to retain status and then upgrade with points .
Points are currently accumulating faster than I can use them.
Once I re-qualify platinum I will do the rest of the year on classic awards then see how many points I burn.


Out of interest what price do you all place on points in actual dollar value?

 

[Benno]

Out of interest what price do you all place on points in actual dollar value?

I only value them for what they can save me in $$$ for seats. This varies between $5/1000 and $10/1000

 

[burmans]

I find it more beneficial to consider the bigger picture and look at the effective tax rate, rather than fixating on a particular income stream and allocating it to a marginal tax bracket.

For a person with a 200K taxable income, their tax+levy liability is still only about $68K. This gives an effective tax rate of ~34%.

While I agree that the person has an effective rate of ~34% I find it hard to agree this is the right way to consider the question in question here. If we are comparing say 1K in interest vs say 100K FF points, taking the interest would increase their taxable income by 1K to 201K and the extra 1K would be taxed at their marginal rate not their effective rate so hard to see why you would use anything other than marginal rate in calculating the value to you.

 

[NoName]

Unless you would be willing to actually buy points for 5c-10c per point I don’t know that saying you value them at that price is really the right way to be thinking here. We’re talking about forgoing cash interest for QFF points so what is relevant is how much cash you would be willing to trade (pay) for each point. For me, while I can and do get 5c-10c value per point when I redeem them, there is no way I would even consider paying anywhere near that. Give me the cash interest any day. Of course YMMV and if it does I’ll be happy to make you my cousin for a day and we can swap 100k of my QFF points for $5k of your AUD. I'll even do it for the QFF rate they let you top up at of $20 per 500pts.

 

[medhead]

$5/1000 or $10/1000 is 0.5 cent or 1 cent per point

 

[NoName]

$5/1000 or $10/1000 is 0.5 cent or 1 cent per point

A misread on my part there. But who is redeaming them for that sort of low rate?? Toasters?

Anyway, the point is that in this discussion at least I think it's more relevant to be talking about what you would actually be willing to pay for points.

 

[medhead]

A misread on my part there. But who is redeaming them for that sort of low rate?? Toasters?

I read it according to a comparison I sometimes use, not so much a redemption value.

Say I want to get from point a to point b. Say the lowest fare I can get is $215 (in Y). That is the amount of cold hard cash that I'm (potentially) willing to pay. Lets just say there are also awards: J for 24000 points +$15, Y for 12000 points +$15. If I take an award I'm trading those points to save $200 in cold, hard cash. That means 0.8 or 1.6 cents per point in cash saved. For lower level Y fares That goes even lower. Obviously the nominal value is much higher compared to an actually J fare of, say, $750 in cash. But I'm never going to pay $750.

It's not really about valuing the redemption but valuing a realistic saving achieved. (Something like that)

 

[Benno]

While I agree that the person has an effective rate of ~34% I find it hard to agree this is the right way to consider the question in question here. If we are comparing say 1K in interest vs say 100K FF points, taking the interest would increase their taxable income by 1K to 201K and the extra 1K would be taxed at their marginal rate not their effective rate so hard to see why you would use anything other than marginal rate in calculating the value to you.

It took an accountant a while to convince me about it. I think PAYG witholding makes us think about these things in intuitive, but less than ideal ways. Consider this: you could just as easily decide that all interest income will be counted for your tax free threshold, and other income is taxed at those higher marginal rates. Would anyone take LWOP to reduce their taxable income to gain some FF points? It effectively the same thing.

It's a completely arbitrary way of ordering things, and doesn't make any difference to your total tax liability come EOFY.

Say I want to get from point a to point b. Say the lowest fare I can get is $215 (in Y). That is the amount of cold hard cash that I'm (potentially) willing to pay. Lets just say there are also awards: J for 24000 points +$15, Y for 12000 points +$15. If I take an award I'm trading those points to save $200 in cold, hard cash. That means 0.8 or 1.6 cents per point in cash saved. For lower level Y fares That goes even lower. Obviously the nominal value is much high compared to an actually J fare of, say, $750 in cash. But I'm never going to pay $750.)

That's the way I approach it too. For me, on the routes I fly at the prices I pay, it's worked out at 0.7 to 1.2 cents per point over the last few flights.