Bank Accounts

My wife and I have 14 bank accounts between us. I know that sounds ridiculous, but it’s actually the most streamlined system we could come up with to follow the account setup plan in the Barefoot Investor guide. The book presents what appears at first glance to be a relatively simple banking plan. It essentially recommends splitting up your salary into several accounts in order to separate your money into categories. That makes it easier to budget without having to maintain spreadsheets or track every penny that you spend. That sounds easy, right?

Barefoot full servietteFirst, set up a “Mojo” account to hold $2000 for emergencies. This account doesn’t have any further income added to it. After that, 60% of your income goes into a Daily Expenses account (this one is self explanatory), 10% goes into a “Smile” account for saving towards things you look forward to, like holidays or a new car, 10% goes into a “Splurge” account for splashing out on unnecessary luxuries, and 20% goes into a “Fire Extinguisher” account which is rather poorly defined. The Fire Extinguisher is basically a multi-purpose account for directing money to whatever doesn’t fit into any of the other categories. Once the accounts have been opened, you should set up automatic transactions between them to get your income into the correct buckets, without having the hassle of doing it yourself every payday. All that’s left is the “Grow” bucket, which is just superannuation. So far so good.

ING logoThe book goes on to recommend particular banks. It tells you to avoid any account which charges fees, and also aim for accounts which pay decent interest rates on your savings. The author is especially a fan of ING, and recommends that bank for all of the accounts except the Mojo, which he recommends UBank for. UBank is included as an explicitly second-tier option simply because it is a UBank greenseparate bank, and having your emergency funds in a different institution adds an additional barrier to defeat the temptation to spend the money there. That sounds sensible, except that in practice it’s actually no more difficult to transfer money between different banks than it is between accounts within the same bank. (And soon it will also be equally as instantaneous, once the final NPP rollout happens.)

Unfortunately, when it comes time to set this system up, you’ll immediately discover that the banks have changed their accounts significantly since the book was written. I’m talking about the 2017 edition, currently less than one year old, but already the advice is sorely in need of updating. To the author’s credit, he does state that bank accounts change, and you should follow the spirit of the advice if the details no longer apply. In other words, focus on zero fees and high interest on savings. So that’s what we did.

RAMS logoThe biggest change was in interest rates; ING no longer provides the most competitive savings rate. That honour now goes to Rams, with 3.0%. UBank comes in second, at 2.87%, and ING trails in third place with 2.80%. Below that are a variety of other online banks, like MEBank, Macquarie, etc, with all the big bricks-and-mortar banks left in the dust. If you’ve got your savings in one of the Big 4, you need a wake up call! They’re only able to keep profiting from ridiculous fees and low rates because of the ignorance and apathy of so many Australians. I don’t see any reason to be loyal to a bank that’s not competitive, so I’m only interested in the top three: Rams, UBank, and ING. Each of them has their own restrictions which limit how they can be used in the Barefoot plan.

Rams is the mathematical winner, but unfortunately it has the tightest restriction. To get the 3% interest, you have to deposit $200 a month and not make any withdrawals. That rules it out for the Mojo account, since that’s supposed to sit with a flat $2000 balance (plus whatever interest it earns), without depositing more on a regular basis. It might also rule it out for the Fire Extinguisher, depending on how you interpret that portion of your income. My wife and I are allocating that 20% to investing in shares on a regular basis, so that withdrawal restriction eliminates Rams for us for that account. But the Smile account is a good fit; we tip 10% into it each month, and we don’t plan to touch it for over a year.

Barefoot bucketsThe key change of the Barefoot darling, ING, was restricting customers’ access to their interest rate on their savings accounts unless you jump through a couple of hoops first. You have to deposit $1000 a month, but that isn’t a big problem because you don’t need to leave the money there. For example, for saving money in the Smile account, if 10% of your income is less than $1000 you can just automatically transfer $1000 in from another account, and then also automatically transfer out whatever you didn’t want in there. It leads to a messy tangle of monthly automated transactions, but you can mostly ignore that once it gets rolling. The bigger problem was that you now have to make 5 purchases per month with the attached Everyday transaction account, otherwise the savings account doesn’t earn as much interest. This is a deal breaker for the Mojo account, since it’s meant to be disconnected from your other accounts. Even though the interest rate is not terrible, I want my savings to be working for me as hard as possible, which rules out ING for my Smile account too. I ended up ignoring the savings rate and keeping ING only for my Splurge account, because I make plenty of small day to day purchases from that account, like coffee and lunches.

The clear winner here is UBank, with far less onerous restrictions than the others. To get the 2.87% interest, all you need to do is deposit $200 per month. You can withdraw it again afterwards if you want to, which makes it a good choice for the Mojo account. It means the Mojo isn’t in a separate institution, but as I said earlier, I don’t think that matters because of the ease of cross-bank transactions. We’re also using UBank for our Fire Extinguisher account, because it’s flexible while still earning decent interest while we accumulate enough cash to buy the next chunk of shares. UBank also has handy cosmetic features like a sweep function that keeps your expense account at your desired balance. Unlike ING, you can debit directly from the savings account, which makes it easy to set up all the automated transactions required to maintain the flow between all the different bucket accounts. That’s where it all gets messy!

Serviette plan

So that’s our back-of-the-serviette plan.  My wife and I have both of our salaries going into our joint UBank transaction (Ultra) account, which is our 60% Expense bucket. Then 10% flows into ING for splurging, 10% into Rams for saving, and 20% of it flows into the attached joint UBank Saver, which is our Fire Extinguisher / stock investment bucket.  Unfortunately that’s not the whole picture, because it doesn’t reflect the multiple attached, joint, and individual accounts, or the money bouncing around between the accounts to trigger all the $200 and $1000 monthly deposit requirements.  Rounding out the 14 are our three NAB investment accounts.  My wife and I each have NabTrade cash accounts in our individual names for buying shares, and we also have an account attached to our new Equity Builder loan facility, which I’ll be diving into in another blog post soon.

Serviette accounts

We could simplify things a little by using the UBank transaction accounts attached to our individual Mojo accounts as our Splurge accounts.  That would bring us down from 14 to a more sensible 10 accounts, because we could get rid of our four ING accounts.  It would be an obvious solution, because we already have the two currently unused individual transaction accounts attached to our UBank Mojo accounts.  However, UBank’s sweep feature would automatically push money out of our emergency savings if we accidentally over-splurged, which goes against the Barefoot goal of keeping the Mojo isolated.  We’d probably go for the simplification anyway, except that we like ING’s one remaining competitive advantage: it gives free international transactions and ATM access, so it’s useful as a travel account.

Despite the complexity, it’s all working quite smoothly.  Overall I’m just happy to be avoiding the big banks with their account fees and low interest rates.  Given the ubiquity of the Barefoot Investor, I’m sure many others have struggled with replicating its methods.  Hopefully this post will be a useful guide, at least until the banks go and change their products yet again.  I’m sure there are better ways of structuring banking than what I’m using, and I’d love to hear about any other strategies you’ve come up with, so please leave a comment below.

Disclaimer:
I don’t get any kickbacks for suggesting any of the banks discussed here.  I do indirectly hold shares in the banks though, as underlying stocks in the LICs that I own.
I’m not qualified to give financial advice.  If you’re confused about banking, talk to an accountant.

September 2018 update:
Unfortunately, Rams has now pulled back their interest rate to 2.80%.  That means it falls from first place in the interest rankings to a pathetic 4th place.  (MeBank holds the number 3 spot now.)  The only positive about Rams now is the disincentive to withdraw money, which might not be a positive to some people but I like having some money that’s a bit more firmly squirreled away.  Once the feelings of betrayal subside, I’m going to have to reconsider my account structure, probably putting more of our savings into UBank, the new number one.

November 2018 update:
Now that we’ve started a joint SelfWealth trading account, our total number of bank accounts is now up to a whopping fifteen!

18 comments

  1. 14 bank accounts seems pretty extreme! Looking at my wife’s and my bank accounts we have 7 here in Australia (we have others overseas because we used to live in a couple of other countries) and we could pretty easily cut that back to 5 if we wanted to.

    I can see the point of what the barefoot investor is saying about having all the different accounts, but if you’re disciplined you can definitely get by with a lot less.

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    1. I agree. This was more an experiment to road test the Barefoot plan. So far it’s working well enough for my wife and I.

      We also have a few more overseas accounts too, from when we were living abroad. But they’re not easy to access from here, so I’m not counting them.

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  2. I don’t see Barefoot’s fire extinguisher as a seperate account. I read it as a name for what I do with 20% of my income. First I turn that 20% fire hose towards my starting MOJO account, then I direct the 20% stream of money at paying off any debts I have. Then the aim shifts to saving a house deposit, perhaps in a seperate high interest account if I need that structure and discipline, and if owning a home is what I want to do. Then on down the Barefoot Steps. Using the stream of fire extinguisher money for direct investments probably comes after getting the banker off your back by paying off the mortgage but everyone has different priorities and financial resources so that may kick in sooner for some people. Also by that stage a person’s financial literacy has probably improved so that they can “tread their own path.” It certainly worked like that for me.

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      1. This is how I thought it was also. The fire hose is a stream of funds that you direct to the most current debt emergency. I.e Mojo, then high interest debt, then low interest debt, then mortgage, then super + investments. Or whatever priority you want to set. I wouldn’t think you really need a seperate account for mojo. Instead isn’t it easier to just not let your account get below a minimum balance (and if it does then direct the fire hose toward it again).

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      2. Certainly none of the separate accounts are strictly necessary. The reason Barefoot Investor gives for keeping the mojo separate is that you’ll be more likely to leave it untouched.

        That advice is probably aimed at less financially literate people. On the other hand, separating it is no bother either.

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    1. Having the different allocations separated into different accounts makes it easy to manage money without having to maintain a budget or spreadsheet or anything. I don’t need to track expenditures because the different accounts run on auto-pilot.

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  3. Hi mate,
    Thank you so much for this post, you raised a lot of great points. After picking up the Barefoot Investor 2018 guide, I was also surprised at how the details of the bank accounts weren’t exactly updated with the current systems that ING uses (i.e. only 2.8% on one saver account which makes having two savings accounts with ING pointless, plus the 1000 deposit/month and 5 purchases).

    I have an idea to potentially counter with a serviette strategy that might be an update on your current bank account setup. Note that this setup excludes any of the accounts used for buying shares or equity home loans.

    Setup:

    6 Accounts in Total

    1 ING Everyday Account for Daily Expenses. My income comes here and I’m in a position where I can deposit $1000/month into it plus make five purchases with it for any expenses like bills or food. For the sake of the argument and following the barefoot steps, let’s say 60% of all my income that goes into the Everyday account goes to daily expenses.
    1 ING Savings Maximiser for Fire Extinguisher. This is linked to the ING Everyday Account to get that 2.8% variable interest and 20% off the income that originally goes into the everyday account can go the Savings Maximiser account.
    1 Ubank Ultra Transaction Account for Splurge. 10% of the income that goes into ING everyday account then gets paid to the Ubank account for Splurge expenses. The requirement being that it has to be $200/month.
    1 Ubank USaver account for Mojo. This is linked to the UBank Ultra Transaction account and because only one of them has to be receiving $200/month, it will then be eligible for the 2.87% savings interest rate. Top this up with an initial $2000 and don’t touch it.
    2 Rams Savers Account for Smile and a “Withdrawal Account”. The remaining 10% from the total income into the ING Everyday Account goes into 1 RAMS Savers Account for Smile which currently gets 2.8% variable interest rate on savings (looks like it’s changed from the 3% that I see in your article when it was written back in June). The second RAMS account is effectively a dud account and only used for withdrawing out money. By this I mean, since any RAMS Savers account restricts you in withdrawing, if you have two RAMS Savers account, you can transfer money between the Savers Account to the Withdrawal account and then withdraw the money from the Withdrawal Account. The benefit is that say you have $10,000 saved up for a holiday but when it comes to the day, you only need $2000 (plans change), you transfer $2000 from the $10,000 in the RAMS Saver account into a withdrawal account, withdraw the $2000 and happily lose that bonus interest for the month because you’ll still be saving yourself that 2.8% interest rate (not 3% anymore unfortunately) on the $8000 left in the Savers account. You don’t lose interest for transferring, but you do lose interest for withdrawing.

    Would love to get your thoughts on this setup.

    I also wanted to query you on something about the ‘Sweeping’ feature with Ubank. I’ve read that (annoyingly) it’s an automated feature that will transfer money from the USaver savings account to the Ultra transaction account, with a minimum $100 that you set to always be present in the transaction account. So if you spend under that $100 in transaction account, it will initiate the transfer.

    This might be an issue if like you said, you want your Mojo to be untouched. And if i’m proposing to have Mojo linked to the splurge account, the only way this would happen if I remain diligent with the splurges and made sure I had $100 on top of whatever I was going to spend because that $100 is effectively dead if you don’t want your Mojo account to start being transferred. Is this a compromise that I’ll have to take with this setup or do you see any other ways around it?

    I noticed that this is also something that you realised when you mentioned you could have the Ubank transaction account setup as a splurge which is linked to the Ubank Mojo account but then you talked about having the Mojo account being isolated and I’m not sure if you’re inferring that ING has the Mojo Account. Is this why there’s four ING accounts? Because I’m also unclear on what the four ING accounts are as from reading I could only see you mentioning that you use ING for splurge.

    Maybe I’ve answered my own questions but I’m just looking for some clarity.

    Really liking this blog from the few articles that I’ve read.

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    1. Just re-read your article and had another question, now I’m thinking that if you have the Mojo account in the Ubank Usaver account, so long as you’re not using the Ultra account attached you’re in the clear of worrying if the Mojo account will automatically top it up.

      The only question I have though is that, once you deposit $200 per month in the Ultra account and then withdraw it say back to the ING everyday account, do you have to leave a minimum $100 in the Ultra account because sweep will kick in? Or can you have $0 in the Ultra account after you withdraw the $200 from the account and you’ll still get the savings interest in the Usaver account. I’m assuming it’s the former scenario and you still have dead money with $100.

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      1. And sorry one last final thought. what if ING everyday account is for splurge, ING Savings maximiser is for Mojo, Ubank Transaction is daily expenses, Ubank Saver is fire extinguisher, and two accounts with RAMS for Smile (including the withdrawal)

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    2. Your 6-account setup isn’t too different from mine. The main difference is that I’ve avoided linking my Mojo account to any other account, as per the instructions in the Barefoot book. Scott Pape actually says the Mojo should be in a whole separate bank, but I found that’s not practical simply because of the dearth of good account options at the moment. So I’ve got my Mojo in a Ubank Saver account, with an empty Ubank transaction account attached. The attached transaction account is essentially vestigial, because it’s only purpose is to get the interest on the saver account. Likewise, the ING savings account attached to my ING Orange (Splurge) account is also vestigial. You’ve eliminated the two vestigial accounts by attaching the Mojo account to another active account, which I think is a very sensible choice!

      Of course, the other difference is that my setup is for 2 people, with some joint and some individual accounts.

      The $100 minimum sweep for the Ubank accounts is easy to avoid. You can set the sweep minimum to a number that’s higher than you have in your account, so that the sweep will always fail. I think I have mine set to $1,000,000. Every day it tries to sweep a million bucks out of my Mojo account into my vestigial/empty transaction account. Obviously I don’t have a million bucks, so the sweep fails and nothing gets moved. Problem solved!

      You’re correct that I only use ING for the Splurge account. But there’s also an attached ING savings account connected to that, which I hardly use. As mentioned above, I consider that a useless account, except that it’s handy when I travel. Then double that for my wife’s ING Saver Splurge plus its attached savings account, that’s where our 4 ING accounts come from.

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      1. Is that how the sweeping feature works? Haha that’s hilarious and amazing.

        I kind of like the idea of it trying to sweep $1,000,000 each day but failing to, because I really don’t want the Mojo to be accidentally touched. In that case, if I can actually have a Ubank Ultra account with $0 in it and still make sure it gets $200/month, I might just go with your setup and have a Mojo attached to it plus another pair of Ultra and USaver for the daily expenses and fire extinguisher.

        Alternatively, I stay with the setup from the first comment where 1 ING Everyday Account is for Splurge, 1 ING Savings Maximiser is the Fire Extinguisher, 1 Ubank Transaction for Daily Expenses, 1 Ubank Saver for Mojo (and just set the limit to be $1,000,000 so no pesky changes it gets automatically transferred into daily expenses) and the 2 RAMS accounts as mentioned.

        Speaking to my Dad (as I’m trying to get him sorted out), he’s proposed having two Everyday ING Accounts for the splurge and daily expenses respectively, 1 ING Fire Extinguisher, 1 Ubank Transaction Account as a dud that’s linked to 1 USaver, and the two RAMS. Brings it up to 7 compared to my 6, the advantage that he likes is seeing the splurge and daily expenses in the one account online. I also like that just because of the apple pay potential but also the no fees at atms. Unfortunately, I would need to do some automatic back and forth deposits to make sure I deposit a minimum $1000 in both the orange everyday accounts. Something like income goes into the first everyday account, then deposited into the ubank transacation account, then that goes back into the second everyday account haha.

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  4. This is awesome. Thanks also to The Barefoot Follower for your systemic and thought out movements towards maintaining the best and hardest working accounts, effectively overcoming the issues that might stunt growth. It makes a lot of sense and i’m actually going to use your system going forward. Despite what some might see convoluted, you’ve truly opened my eyes to what (really) is a very manageable system. Thanks guys!

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