Do you take maximum advantage of float/interest when paying bills?

[Special K]

I searched and didn't find a topic specifically addressing this issue so I'll post it here:

Do you wait until the last day to pay your bills to take advantage of as much accrued interest as possible? Do you pay for everything with credit to give you an extra 20+ days of accrued interest on the purchase? Do you keep as much money as possible in interest-bearing accounts?

I suppose I could just setup a simulation to see exactly how much money I would gain per month by doing this, but I was just making this post as an informal survey.

 

[yllus]

I do pay for everything using credit, but that's solely to accumulate points in whatever rewards program I'm using, and for the added buyer's protection the credit card offers me. I can't imagine the interest you make as being worth the carefulness you'd have to engage in.

 

[FoBoT]

that only works for people that have money

 

[Glavinsolo]

Seeing as how banks use average daily balance it would be hard to fully benefit from this if you are paying just days before the bill is due. We pay all bills 10 days before they are due setup through automatic bill pay.

Edit: Ok just read the pay with cc statement. I could see how if you had 3k in your checking account to use debit with but then again I would prefer to make purchases with cc to have that 3k make more interest in savings and then later transfer it when you start making payments.

 

[Gibson486]

Doesn't that only work for multibillion dollar companies? For your average Joe, the profit would be so minimal.

 

[sciencewhiz]

For the bills that let me schedule payments, I schedule them for the day before they are due. If I can't schedule them, I pay them at the time I'm paying bills, don't try to wait and mail it later. I do pay for things with my credit card as much as possible, but the rewards are more valuable then the float, by far.

 

[kranky]

Up to a point. But the consequences of a late payment are too great to try to cut things too close. I will charge for the cashback and the protection, but not specifically to play the float.

For me I do better bouncing funds between checking (3%) and savings (5.25%).

 

[Special K]

Originally posted by: Glavinsolo
Seeing as how banks use average daily balance it would be hard to fully benefit from this if you are paying just days before the bill is due.

What exactly do you mean by this? I thought savings accounts typically compound interest daily and credit it monthly. So every day you keep the money in the account is one more day you are earning interest on the balance.

The savings may not amount to much, but that was kind of why I started this thread - to see if anyone considered it worthwhile to do this.

 

[aceO07]

I pay during the last week and charge most things so I keep the money longer gaining interest to make it less expensive with NY taxes. It's probably really minor, but I also hate coins in my pocket.

 

[Glavinsolo]

Originally posted by: Special K

Originally posted by: Glavinsolo
Seeing as how banks use average daily balance it would be hard to fully benefit from this if you are paying just days before the bill is due.

What exactly do you mean by this? I thought savings accounts typically compound interest daily and credit it monthly. So every day you keep the money in the account is one more day you are earning interest on the balance.

The savings may not amount to much, but that was kind of why I started this thread - to see if anyone considered it worthwhile to do this.

Compounded daily would mean that you would get a deposit for interest accrued each day so that the interest you received the day before gets calculated into the new divided for today. Which isn't the case.

The bank sees that you have $3000 for 15 days and $0 for the next 15 days of the month, the bank applies the interest to $1500 to give you a dividend on your average daily balance.

This is used also for credit cards.

Someone correct me if I am wrong this was my understanding

 

[Special K]

Originally posted by: Glavinsolo

Originally posted by: Special K

Originally posted by: Glavinsolo
Seeing as how banks use average daily balance it would be hard to fully benefit from this if you are paying just days before the bill is due.

What exactly do you mean by this? I thought savings accounts typically compound interest daily and credit it monthly. So every day you keep the money in the account is one more day you are earning interest on the balance.

The savings may not amount to much, but that was kind of why I started this thread - to see if anyone considered it worthwhile to do this.

Compounded daily would mean that you would get a deposit for interest accrued each day so that the interest you received the day before gets calculated into the new divided for today. Which isn't the case.

The bank sees that you have $3000 for 15 days and $0 for the next 15 days of the month, the bank applies the interest to $1500 to give you a dividend on your average daily balance.

This is used also for credit cards.

Someone correct me if I am wrong this was my understanding

I thought they compound it daily but they only credit it monthly.

 

[dullard]

Yes, I play the float game all the time. Why not take the free cash. Of course, like mentioned above, I don't push it too far since the penalty for paying late is great. Thus, I don't pay things on the day they are due, I pay them on the last date for which I can detect a problem and still have time to fix it without going late. That usually means 5 business days before it is due.

I'll do a simple example to show what I do.

1) I have a 6% loan that I am paying off. I want to pay it off as soon as possible.

2) Suppose I wanted to buy a $200 item.

3) I have four choices (sorted from worst to best):
(a) pay cash (which means withdrawing money previously),
(b) debit card if I had one (which means paying it immediately),
(c) credit card near the end of the billing cycle,
(d) credit card near the begining of the billing cycle.

Lets analyze the situations.
(a) Pay cash. Lets say I took out $100 in cash 2 weeks ago. That means I couldn't have that $200 paid on my loan for 14 days. At 6% interest, taking out that cash early cost me 23 cents.

(b) Pay with debit card (if I had one). Since the payment is instant, this has no float effect. It is break even.

(c) Pay with a credit card near the end of the billing cycle. This gives me ~3 weeks until the bill is due, but since I pay the bill 5 days ahead of time, lets just round down to 2 weeks. 6% interest for 2 weeks gains me 23 cents.

(d) Pay with a credit card near the beginning of the billing cycle. This gives me 4 weeks until the bill comes AND a 3 week grace period. Subtract 1 week for paying a bit early and I net 6 weeks of free interest. That comes to 70 cents in free money (compared to debit cards).

So I can either pay $100 + $0.23 = $100.23 or pay $100 - $0.70 = $99.30 for the exact same item. That is a swing of nearly $1 for a $100 purchase. In other words, I get nearly 1% back on every single thing I buy just based on the float game. That is on top of the 3%-5% cash back I get from the credit card.

Think how many purchases you make. Think what 1% will do for you.

 

[Miramonti]

I use autopay for all monthly payments, and they are deducted a few days before the bills are due.

 

[DrPizza]

What kind of interest are you getting? Let's say 3% for example...

Ballpark estimate, ignoring compounding of interest from month to month (because it's not enough to matter):

Suppose you pay out $2000 in bills and pay them 10 days early.
By waiting til the last minute to pay, you're essentially earning interest on that $2000 for an extra 10 days each month. 10 days per month times 12 months is an extra 120 days worth of interest gained. That's about 1/3 of a year, so you'll end up with about 1/3 of that 3% interest: roughly $20 over the course of a year.
4% interest? Roughly $27 a year.

If you're pinching pennies, there are far more effect ways to do it. Change the thermostat by 1/2 a degree and you'll reap more than $27 in savings.