A Sense for Money
A Sense for Money returns with advice on the important everyday personal finance issues of credit and bank accounts. If you have personal finance questions or comments, e-mail them at email@example.com.
When should I use my credit card instead of cash?
There are many factors you should keep in mind when deciding whether to use your card. For example, many restaurants and hotels have attractive offers and discounts if you use a certain card issuer or brand. So if you are having a family meal at such a restaurant, it makes sense to use the card rather than cash and pocket immediate savings of maybe 30 percent.
Cards can also be very useful as a zero-interest, short-term credit facility. Imagine you want to buy some new furniture because there is a special one-day sale. You don’t have the cash in your bank account but you know you will be getting a bonus at the end of the month. Your card is then a perfect solution. But be 100-percent sure your bonus really will be in your account by the time your credit card bill is due. If you don’t pay off the account balance in full each month, the interest costs and charges can be exorbitant.
Avoid using credit cards as a vehicle to borrow money on a long-term basis for a car or similar large item. If you need to finance such purchases then a bank loan or hire purchase arrangement is normally a much cheaper option than a credit card.
Another time to avoid using a credit card is when there is a discount for cash payment. In fact, if you ask retailers whether they will give you a discount for paying in cash, they will sometimes oblige. In such cases, provided you have the cash on hand, it is best to keep the plastic in your wallet and pull out the notes.
The benefits of a credit card can be summarized as convenience, security, discounts and free credit. But each of these can turn against you if you get it wrong. Free credit can turn into an expensive loan if you miss the payment date. The security of carrying a piece of plastic rather than a wad of cash can turn into insecurity if your card and PIN get stolen. Think about the pros and cons before you decide which side of your wallet to open.
Is it better to have many bank accounts or just one? How can I make the best use of multiple accounts?
There are many benefits to having several bank accounts. For example, you will be able to get more than one ATM or credit card in case one fails or is denied. You can have one term deposit account for savings and one current account for immediate cash needs, or one for rupiah and one for US dollars. You can also switch money from one bank to another to take advantage of higher interest rates.
Additionally, there’s added security because in the unlikely event that one bank fails, you won’t have all your eggs in one basket. Moreover, some countries have national schemes for individual account holders that guarantee deposits up to a certain sum, say $50,000. So if there is a bank failure, it’s better to have three accounts with $40,000 in each than one account with $120,000.
There are also drawbacks to having multiple accounts. You may bear two sets of bank charges, especially if your account balance falls too low. Interest rates often increase with larger account balances, so you may lose out in on yield if you have several small accounts rather than one large one.
As a general rule, the more money you have, the more sense it makes to have multiple accounts.
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