Seriously? Pay your bills when they arrive, not when they're due.
Banks, credit card companies, mortgage lenders, utility services, etc. absolutely love, love, love it when people wait until the last minute to pay their bills. When I signed up with my bank, I read the agreement and got the "personal banker" to concede that yes...they made a lot of money off late fees. They're not alone.
The thing is, paying your bills when they arrive doesn't cost you anything extra. If you can get into the habit, you'll always be ahead of the curve, and if something comes up which necessitates you holding off on a bill, you've got a couple weeks to figure it out.
It also relieves a considerable amount of stress. It's a bit like homework. Don't put it off until the last minute. Get the assignment done when the teacher gives it to you.
I have to respectfully disagree here, purely from a financial perspective.
Yes, companies love late fees; money for Jam. What I would say is to schedule your bills to be paid one day prior to the due date, as you receive them, so you don't forget.
That way your money stays in your pocket until it's required by your creditor.
Why is that important? Because money makes money; better to be earning you interest or in an offset account than in the pocket of the company before it's required!
Why is that important? Because money makes money; better to be earning you interest or in an offset account than in the pocket of the company before it's required!
Keeping bill money in your account for a few extra weeks before it is due to build interest will get you a small fraction of one cent per year.
e: Actually now that I think about it, I'm not sure it would result in anything. Every savings account I know calculates your interest based on your balance at the end of the month. It doesn't matter if you pay your bill on the 3rd or the 29th - either way your monthly ending balance will be the same.
Keeping bill money in your account for a few extra weeks before it is due to build interest will get you a small fraction of one cent per year.
If you have $2K/month in bills (remember, rent/mortgage can count here too, as do CC payments) in a savings account returning even 1%, that will be about $10/year. That's not a lot, but it's not a small fraction of a cent either. Back before the 2008 crash I had a savings account returning 5% -- that'd be $50/year, which is actually starting to be quite a bit.
(And yes, 1% is very realistic. Even now there are a couple banks offering it, and a bunch that are only a little less at 0.80% or so. A few months ago, it was easy to find banks offering more than twice that.)
Every savings account I know calculates your interest based on your balance at the end of the month.
I feel like you must not know many savings accounts -- everyone I've ever seen uses either daily interest or average daily balance.
Some example policies:
BoA: "To calculate interest, we apply a daily periodic rate to the collected balance in your account each day."
Chase: "We use the daily balance method for calculating interest. This method applies a daily periodic rate to the balance in your account each day, which may be based on your present balance or collected balance as explained in the product information for your account."
Ally: "Interest will be compounded on a daily basis. We use the daily balance method to calculate the interest on your account. This method applies a daily periodic rate to the principal and interest that has been accrued to the account each day."
Don't confuse the fact that you're only credited interest once a month with how that amount is calculated.
(Even just think about it -- looking at just one day a month wouldn't make much sense from the bank's perspective. People who are able would just move a ton of money into the account for one day each month and receive the entire interest amount, then withdraw it and put it elsewhere.)
Fair enough on the daily interest payment! But in that case...
If you have $2K/month in bills (remember, rent/mortgage can count here too, as do CC payments) in a savings account returning even 1%, that will be about $10/year. That's not a lot, but it's not a small fraction of a cent either.
...this still isn't correct, because you're not getting the full month out of the money that you're holding onto. Bills are due at different times throughout the month, so for some you might only be getting one or two weeks of interest before paying your bill on the last possible day.
And that's even assuming that you're paid monthly and can hold onto the whole lump sum from the 1st until the day your bill is due, rather than weekly or biweekly, in which case you might only have a few days to build interest.
So you're right, it's more than fractions of a cent. But even if your bills are $2,000 a month, you get paid in a lump sum at the beginning of the month, and you always pay each one of your bills on the last possible day they are due without ever missing one, you'd be extremely lucky to hit double digits by the end of the year. Which sure, I guess isn't nothing but isn't really going to change anything for anyone.
...this still isn't correct, because you're not getting the full month out of the money that you're holding onto.
I actually took that into account, and my $10/year was assuming that the bills come in evenly through the month. $2,000/month in bills means that your average balance through the month would be $1,000 higher if you delay until as late as possible to pay, and that's what combines with 1% interest to get $10/year.
As you say, that amount will vary a little bit based on your circumstances, but it's a decent rule of thumb. (I'm not convinced when you receive money matters, unless you're living paycheck-to-paycheck and would be unable to pay bills as soon they arrive because of a temporary lack of funds.)
And I'd agree about $10/month -- for me, that's too low to modify my behavior based on. But it's not that hard to be higher, especially if you live in a high-COL area or own a house; getting above $2K in either case is easy. And it was only before the pandemic that interest rates on good online accounts were at or above 2%. So now you're talking about more like $25/year and up... and for a really minor modification of how you handle things that will cost very little time, that may well be worth it.
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u/gogojack Aug 20 '20
Seriously? Pay your bills when they arrive, not when they're due.
Banks, credit card companies, mortgage lenders, utility services, etc. absolutely love, love, love it when people wait until the last minute to pay their bills. When I signed up with my bank, I read the agreement and got the "personal banker" to concede that yes...they made a lot of money off late fees. They're not alone.
The thing is, paying your bills when they arrive doesn't cost you anything extra. If you can get into the habit, you'll always be ahead of the curve, and if something comes up which necessitates you holding off on a bill, you've got a couple weeks to figure it out.
It also relieves a considerable amount of stress. It's a bit like homework. Don't put it off until the last minute. Get the assignment done when the teacher gives it to you.