Wednesday, September 24, 2008

Paying advance bills with Manhattan card (Revised)

I am sure everyone knows the high cash rebates as offered by Standard Chartered Manhattan credit card if you make huge transactions. A fellow visitor of this blog suggested paying our bills in advance so as to enjoy the highest tier of 5% cash rebates. I know he got a huge chunk of monthly bills to settle; so basically he has been been paying bills in advance every month with the card.

Take note you need to spend at least $3001 in a month to qualify for the 5% rebates which will be credited 1 month after that quarter. For various bill sizes, I want to compute the cash values at the end of the year by paying in advance with Manhattan credit card and by making normal payment like Xtrasaver card for various bill sizes.

I created four scenarios with monthly bill sizes of $2000, $1000, $800 and $600. Under each scenario, two options of payment are used. They are payment using Manhattan and Xtrasaver cards.

I made a few assumptions to simplify my calculation.
1) Manhattan acts like debit card. That means transaction and settlement is on same day
2) Minimum monthly spending of $3000 instead of $3001 is used to qualify for Manhattan 5% cash rebates
3) Cash rebates are credited at the end of the quarter for Manhattan credit card

Scenario A
Monthly Bills = $2,000
Quarterly Bills = $6,000
Annually Bills = $24,000

Peter and Sam keep aside $6000 for bills every quarter

Remaining money are kept in bank with interest of 1.2% per annum

Illustration with $2000 monthly bills

Scenario B
Monthly Bills = $1,000
Quarterly Bills = $3,000
Annually Bills = $12,000

Peter and Sam keep aside $3000 for bills every quarter

Remaining money are kept in bank with interest of 1.2% per annum

Illustration with $1000 monthly bills

Scenario C
Monthly Bills = $800
Quarterly Bills = $2,400
Annually Bills = $9,600

Peter and Sam keep aside $10000 at the beginnning of the year for bills
Remaining money are kept in bank with interest of 1.2% per annum


Illustration with $800 monthly bills

Scenario D
Monthly Bills = $600
Quarterly Bills = $1,800
Annually Bills = $7,200

Peter and Sam keep aside $8000 at the beginnning of the year for bills

Remaining money are kept in bank with interest of 1.2% per annum

Illustration with $600 monthly bills

From all the above scenarios, the conclusion is a no brainer suggestion to use Manhattan credit card if you really have a huge chunk of bills to settle off. You can see a big difference in the remaining amount of money kept in the bank or money market funds at the end of the year if you choose this option.

I did not try to compute under other scenarios where the monthly bills get smaller than $600 though. You may try similar calculation yourself to see whether you are better off to pay in advance to earn that 5% rebates. The only drawback of choosing Manhattan credit card to pay for your bill is that you need to go down to the billing organisation to pay instead of setting up a recurring standing instruction to charge under Manhattan credit card. This is because the rebates is entitled only for retail spending.

In conclusion, it is not true that Manhattan credit card is beneficial only for spending on big tickets but it is also beneficial for those who have huge combined household bills. It can really help to save your bills annually.

17 comments:

zong said...

hi,
the Scenario D doesn't make sense.
The annual bill is only $7200.
3 quarters of $3000 will be sufficient. there is no need for a 4th quarter payment.

anyway, there should be a better payment schedule.
consider the following:
01 Jan $600 (Just in time payment)
01 Feb $600 (Just in time payment)
01 Mar $600 (Just in time payment)
31 Mar $1800 (Advance payment)
01 Jul $600 (Just in time payment)
01 Aug $600 (Just in time payment)
01 Sept $600 (Just in time payment)
31 Sept $1800 (Advance payment)

The above method should generate a better result than ur current one.
can u run through ur calculator for the remaining money with interest for D1?
I'm interested in the result.

Assumption: transaction date and merchant settlement date is on the same day.

Mike Dirnt said...

hi Zong,

thanks for bringing up. i have overlooked on the option D1.

1) the corrected schedule should be the following:
Modified for 3 quarter payments only
Total Bills paid for the year = $8,700
Remaining money at end of year with interests = $3,461.65

it still lose out to the option D2

2) as to your other schedule of payment, can you explain the rational of paying in advance of $1800? AFAIK if you do that, you will lose the opportunity of earning interests in the bank if you paid upfront

Mike Dirnt said...

my brain has started to think. i think my conclusion is skewed.

on a 2nd thought, i realise as long as your annual bill is > $3k, you should use combinations of Manhattan and other cards to maximise rebates.

for example, if annual bill = $3k then do a one time advance payment of $3k by Manhattan. the rebates is definitely more than the interests earned by money put in banks/mmf.

if annual bill is < $3k, by doing trial and error, actually there is a cutoff limit of bill such that you are equally alright to pay in advance and not paying in advance. :P

zong said...

hi,
u shouldn't just to pay only $3k per quarter. manhattan is capped at $300 cash rebate per quarter, which means that u should only spend up to $6000 per quarter.
using my proposed schedule, u only need to pay $3600 for 1st and 3rd quarter, resulting in $7200 total for bills paid.
The modified one still doesn't make sense. If the annual bill is only $7200, which should u pay $8700?

Mike Dirnt said...

zong,

the option D1 is just using Manhattan card only. for a better management, you need to use a combination of manhattan and other cards. i did say this on the 3rd post of these comments

i think we get the idea now. no matter whatever your bill amount, you can optimise your rebates if you time your and manage your advance payment. i did say this on the 3rd post of these comments :)

Mike Dirnt said...

interesting combinations zong,

01 Jan $600 (Just in time payment)
01 Feb $600 (Just in time payment)
01 Mar $600 (Just in time payment)
31 Mar $1800 (Advance payment)
01 Jul $600 (Just in time payment)
01 Aug $600 (Just in time payment)
01 Sept $600 (Just in time payment)
31 Sept $1800 (Advance payment)

now i know what you meant. i didnt see the dates correctly. so its payment for 2 quarters only.

you are right this one should be a better schedule for $600 monthly bills

zong said...

actually quite curious how u all manage to strike up such a huge monthly bill.
my household of 4 only have $100-150 in hp, telephone and broadband bill.
sp $100+. (OT abit. saw u all saying that D-Day is coming. shit... i just cancelled my giro. need to do giro again:( )

come to think about it, how does stand chart earn from manhattan card?
i tot credit card merchant transaction fee is about 2-3% only?

Mike Dirnt said...

zong,

you confused me intially. :P

your combination does not work because you need to spend 3k in a month not in a quarter.

anyway i have revised the whole article. this time it should be clearer. you may want to read from the beginning.

it seems if you have a monthly bill of at least $600, its good to pay using Manhattan. i did not try to calculate for smaller bill sizes though.

FYI i did not have that big bill sizes. mine is monthly about $300+. its just for sharing purposes and im sure some can chalk up that amount of bills.

i really dont know how SCB can earn from the credit cards but it seems they are very generous on giving good CASH rebates. so utilise it while still lasts :)

Mike Dirnt said...

FYI,

i have calculated based on $250 monthly bill or annually bill of $3000.

if you make advance bill payment of $3000, your remaining money = $151.35
if you pay monthly of $250 with credit card like UOB one card at 3.33% rebates, your remaining money = $108.66 (assuming $3000 is kept in the bank at the beginning of the year)

zong said...

i see...
the website mislead me. I tot is based on per quarter.
seems like this card isn't good for those normal spending on clothes and such.
it should only be used for advance bill payment and big ticket spending on plasma tv and such.

then in that case, for those normal retail spending, xtraSaver card should be used right?
but assuming u maintain $7k in that acc, u will only get interest of $1.29 per month.
whereas u will get $5.83 with $7k in Fairpriceplus account of 1% interest.
$4.54 difference. must spend $227 monthly, else it will be more beneficial to put the money in FPP.

Mike Dirnt said...

for normal retail spending, the next best card is UOB one card. effectively rebate is at 3.33% then followed by Xtrasaver at 2%.

i like to use my Xtrasaver because i earn big rebates from them :P if you have been following my blog, you will know. try read more on my credit card section

zong said...

uob one card isn't suitable for normal retail spending. it requires $300/$800 spent every month for 3 months in order to get $30/$80.
since bills are already taken care of by manhattan, it's not guaranteed that u can hit that amt every month.

ya, i have read about the xtrasaver. but i have also read about D-pay. D-day is coming.

Mike Dirnt said...

currently im charging all my bills including ezlink to UOB one. so reaching $300 a month is about there.

i will consider the advance payment with manhattan when i have my own house.

Verbatin said...

I have many frds/colleague who ask me which bank offer the best FD rate.

I always tell them that if they have 3k to spare, why not spend in advance using manhattan card. Even if it takes 1 year to utilise the 3k, it makes sense as it will earn u 5% (more than 5% as u get your $150 by the end of following qtr)

for FD, u are locked up and the return is 1-2% only.

zong said...

what happen if u do advance payment for bills that u have giro arrangements?
they will still deduct from ur bank during next bill payment, or deduct from the leftover cash from ur advance payment?

Mike Dirnt said...

if you have a giro, usually the BO will request a payment few days before due date of your bill. so if you make advance payment before that cutoff date, the BO will not request duplicate payment. this is what i understand.

maybe you can check with BO to confirm

verbatin said...

GIRO deduction will not take place
If u are on GIRO, u made advance payment 5-6 day before the GIRO deduction.

however if you made payment 2-3 day before, GIRO deduction might take place. T