If you have ever had the annoyance of a hefty fee or
increase in interest rate simply because you missed a deadline on your loan
payment – you might consider making a Standing
Instruction.

How does a Standing Instruction work?

Standing instructions are a way of making an automatic
payment of a fixed amount to a loan, bill, or credit card at the same time
every week or month. It can be made from your savings or checking account and
is most commonly used to make payments to a mortgage, car loan, or to pay
bills.

Is this method of payment free?

Almost anything a bank does for you that offers any kind of
convenience will come at a cost.

Depending on your bank, each
transaction made will cost you RM2 in fees*. This means that if you use
Standing Instructions to pay 3 loans and 2 credit cards, you will pay 5 transaction fees at a cost of about RM10
every month.

Tip: If your
account has insufficient funds to make a payment at the time you set the
transfer, you may be charged between RM2-5 in fees for every unsuccessful
attempt.

Who are Standing Instructions good for?

Standing instructions aren’t for everyone – especially if
you want to avoid paying fees. If the following applies to you, then a standing
instruction might be the a good option to manage your money:.

• You are
  usually forgetful. Having an automated mode of payment will definitely help
  ensure that you don’t get penalised for missing deadlines again.
• Your
  payment amounts are fixed. This is important. Standing instructions are
  typically set to the pay the same amount at the same time. If you have a loan
  that doesn’t have fixed payment; you will still end up short or worse – if you
  forget when the payment should change – you could end up paying a lesser amount
  month after month.
• Your
  income is fixed and is credited on time every month. As there is a penalty
  for every failed attempt at automated payment – it’s best to ensure that your
  income is fixed (not based on commission or hours) and that you are certain to
  have enough money in your account at the time every month when payment will be
  debited.

Standing instructions are especially good if you are busy and have little time to spend
bothering about bills and loans. Nonetheless, it’s not altogether cheap. RM10
paid each month is RM120 a year which could be better spent elsewhere.

Alternatives to Standing Instructions

If you feel uncomfortable setting up automatic payments on
the off-chance you do forget a bill, these are some other ways you could try to
avoid the problem.

1. 1.
   Download
   a debt management app. Both Android and iPhones have personal finance apps
   including apps for debt management. IOU for instance, is an app for both iPhone
   and Android where you can enter the debt and set a due date.

1. 2.
   Set a manual
   reminder on your phone. You could also do this the old-fashioned way by marking
   your calendar on the same day every month to pay. When you have a routine –
   it’s harder to forget or break the pattern. If you’re a frequent traveler –
   accustom yourself to making payments online so no matter where you are – you
   will pay.

1. 3.
   Get friends
   or loved ones to help. Not pay your bills of course, but to remind each
   other. Setting a bill payment day where everyone pays their own respective
   bills also helps if one person should forget.

1. 4.
   Use
   Online Banking. All your bills can be paid online at anytime using online
   banking. Payments need not be a hassle and settling your accounts is a chore
   that can be completed when it suits you, not only when the bank is open.

There is no doubt that setting up a Standing Instruction
will ensure all your payments are made at the time they are due every month in
the amount required. Whilst such a convenience might be welcome, consider the
extra cost of using an automated payment system.

*Fees may vary from bank to bank. Majority of banks in Malaysia have set standing instruction fees at RM2.

Image source: guardian.co.uk

 

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