July 30, 2007

Cash Management - Savings/Current/Hybrid Accounts

A lot of us saves our monthly pay in a basic savings account. Depending on your needs / requirements, this might not be an optimum way of enhancing your returns. Let's explore the basics of some of the most common cash management accounts that we have in the market now.

Typically, cash management accounts can be divided into 2 main streams: Conventional and Islamic accounts. Conventional accounts basically means that the bank will pay you an interest for the money that you loan / deposit to the bank. Islamic accounts operate based on profit sharing concept, i.e. the bank will use the money to generate income that is compliant with Syariah laws. Then the returns are shared (either in 70:30 or 60:40 ratio) between the bank and you, as the co-owner of the money. So, what is the difference? To non Muslim folks, it doesn't makes a difference since the returns are almost similar, but for our Muslim friends might feel comfortable with Islamic accounts.

Both Conventional and Islamic cash management accounts have different products to cater to different needs/groups of people. These products can be categorised as follow:

  1. Savings accounts - you are normally issued a passbook and you will not be charged any monthly fees/service charges.You will normally earn peanuts from the interests (normally 0.1 - 0.3%). I don't encourage you to save in this kind of accounts since our objective is to maximize our returns!
  2. Current accounts - you are given a cheque book and issued a monthly statement for tracking purposes. This type of accounts will normally not be given interest but instead will be charged monthly fees for maintenance and statement printing purpose. Again, this is not we want to achieve our objectives.
  3. Hybrid accounts - this is basically a current account that earns you interests. You will have the flexibility of current account and earn some extra cash as well. For some banks, they don't charge any monthly fee should you maintain a minimum deposit monthly or half yearly. For others, they might charge a nominal fee monthly.
As a recommendation, I would encourage you to make use of hybrid accounts since you have the flexibility and earn interests as well. The key is to find the suitable hybrid accounts that suit you cash level so as to minimize your costs (due to monthly charge) and maximize income (higher interests earned).

For this kind of hybrid accounts, most banks will require you to maintain average monthly balance of RM5,000 and some other banks RM10,000. Some of hybrid accounts that we have in the market are:

  1. Prime account from CIMB Bank
  2. My1 account from RHB Bank
  3. Maybank Premier 1 and Premier Mudharabah account-i
Let's review the type of accounts that you use now and see whether it can maximize your returns. If it doesn't, then it's time to scout for the hybrid account that will cost you least but earn you most. This doesn't mean that you have to put all your money into such accounts since there are many more instruments that we can explore further in the future articles.

So, Happy Hunting, guys!!

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