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. 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.
- 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.
- 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.
- 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.
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