Report on Bank's Credit Card Financial Plan

The bank our group choosing which is AmBank, they offered about a total of 22 credit card such as AmBank True Visa Card, AmBank Visa Signature Card, AmBank World MasterCard and so on. The credit card most used of AmBank’s customer which is AmBank Carz Platinum Master Card. This card was under series AmBank CARz Card which is included Platinum MasterCard and Gold VISA Card. AmBank CARz Card is a card that caters for motorists and packaged with all auto related benefits. It is packed with a vast of unique privileges meticulously put together. From discounts and rebates to value added services, customer can feel at ease that their regular auto-related requirements are addressed by AmBank CARz Card.

What Is Credit Card?

The rapid growth of consumer credit in the form of credit cards has become one of the most widely held financial instruments for Malaysian households. The Bank Negara Malaysia (BNM, 2001) defines a credit card as “a card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily used for short-term financing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual’s credit rating.” For various reasons, many people choose credit cards to shop in their daily lives. Therefore, credit card issuers, especially banks, have been fierce in the fast-growing credit card’s market competition.

Credit cards, also known as plastic money, have seen a significant increase in usage worldwide since their introduction. At the beginning of the twentieth century, credit cards were first issued in the United States. Since then, they have become very popular in many countries around the world, and credit cards are the primary system for facilitating transactions or payment exchanges for household and personal expenses (Watkins, 2000).

Lee (2000) believes that the use of credit cards actually affects the world's buying habits. This is because credit cards were originally used to pay for luxury items such as travel and accommodation. However, today, many people tend to use credit cards to purchase small convenience items in our daily lives.

On the other hand, in other developed countries such as the United States and Europe, credit cards and plastic currencies are seen as a manifestation of cashless societies (Ingene and Levy, 1982). For example, in an automatic gas station, it is a common phenomenon to purchase groceries and gasoline without a service person. In Malaysia, there are also facilities that allow cardholders to pick up credit cards without the help of a waiter when purchasing gasoline.

How Does the Interest on the Credit Card Work?

The credit card application conditions are not as strict as before, which gives everyone the opportunity to use and apply a credit card. However, many people only swipe their cards, but they do not know how to calculate the interest on credit cards. Each credit card has a billing date and a repayment date. The billing date is the day when the bank sorts out the bill (at the beginning of the month), and the repayment date is the deadline for the cardholder to pay back (end of the month).

Usually the billing date and the repayment date are approximately 20 days apart. If the debts owed are returned within 20 days, the cardholder will not have to pay any interest. This situation is the most cost-effective, because cardholders only need to return the amount that they consume to the bank, and the cardholder do not have to pay any interest.

Conversely, if the cardholder only pays the minimum monthly repayment amount, which is 5%, then the cardholder will need to pay interest. If the cardholder only pays part of the arrears, the interest-free period will be lost. Even if the amount owed is only RM0.40, the interest-free period will be lost and interest will be paid. This interest will be reflected in the cardholder's bill for the next month.

The method of minimum payment of credit card is not only higher than the other loans of the bank in the same period, but also the corresponding fees, late fees and other fees. So the minimum payment of a credit card is often not cost-effective.

Benefits and Disbenefits of Using a Credit Card

One of the credit card that offered from AmBank is AmBank World Master Card. AmBank World Master Card is a world class card especially for globe-trotting travellers. There are a lot of benifit and disbenifit of Ambank World Master Card.

Firstly, the benefit of AmBank World Master Card is it provided unlimited premium airport access, Air Miles conversion and free annual fee every year. The card unwind in the privacy and comforts of Plaza Premium Lounge with privileged lounge access in over 26 major airports both locally and internationally including London, Hong Kong, Taiwan and so on. Card members can enjoy lounge access throughout the year plus 25% discount on all lounges in Malaysia and 20% discount on all lounges overseas for each accompanying guest. It also convert AmBonus Reward Points for Air Miles with Enrich Miles, Asia Miles, Krisflyer Miles and AirAsia BIG Points. This card was best for the traveller or business man who always travel or needed to fly to other country for its business by the flight.

Next, the second benefit of AmBank World Master Card is it provided purchase protection and wallet guard. Unlike cash, credit card providers usually offer their customers protection on the purchases made with their card. A purchase protection plan offers coverage against theft or accidental damage. Coverage varies between providers so be sure to check if it is included in your credit card if this is a feature you are looking for. Cardholder can enjoy the exclusivity that gives a worldwide protection 24 hours a day and total peace of mind while carrying most valuable possessions. Cardholder are covered should the unfortunate incident of wallet being stolen due to snatch theft or robbery occur.

However, there are also have some disbenifit of using credit card which is its expensive cash advance. Unlike debit card, a credit card should not be used to withdraw cash from the Automated Teller Machine (ATM). This is usually the last resort and only in cases of ultimate emergencies. A cash advance from an ATM will usually carry a fee of about 5% per transaction or a minimum of RM15-25. On top of this fee, cardholder will be charged the highest annual interest rate in the range the bank offers (usually 17-18%). If he was withdrawing a large amount, the initial 5% will be a hefty amount already and that is even prior to charging full interest on the outstanding amount.

Futhermore, the others disbenifit of AmBank World Master Card is its high requirement. AmBank World Mastercard is available by invitation only. Otherwise, its minimum monthly income is high which is RM10,000. It is impossible to apply this card for the person who was fresh graduated and also the other lower or moderate salary occupation such as labour, accounting, teacher, lawyer and so on.

Calculation of AmBank World Master Card:

The billing date for person X is 5th of the month, and the due date for repayment is 23th of the month. The credit card statement on April 5 shows all transaction between March 5 and April 5. This month's billing cycle of person X has only one consumption which is on March 30, the current bill with a consumption amount of RM1, 000. The amount due in this period is RM1, 000 and the minimum repayment amount is RM50.

Billing date: 5th of each month

Repayment date: 23rd of each month

Consumption amount: RM1, 000

Date of consumption: March 30

Interest rate: 15%

Minimum monthly payment amount: 5%

There are two condition of how person X do the payment:

1) If person X repays RM1000 in full before the April 4, the interest that is recurring on the statement on May 6 is RM0. He no need to pay any interest.

2) If person X repays the minimum repayment amount of RM50 before the April 23, the recurring interest on the statement on May 5 is RM17.46.

Interest from March 30 to April 23:

RM1000 x 15% x 24 days / 365 days =RM9.86

Interest from April 23 to May 5:

(RM1000-RM50) x 15% x 12 days / 365 days =RM4.68

Total Cycle Interest = RM9.86+ RM4.68 = RM14.54

Revolving interest = RM14.54

Repayment in this period =RM50+RM14.54=RM64.54

If person X continues to repay the minimum repayment amount of RM50 before May 23, the recurring interest on the statement on June 5 is RM20.55.

From April 24 to May 23:

RM1000 x 15% x 30 days / 365 days = RM12.33

From May 23 to June 5:

(RM1000-RM100) x 15% x 13 days / 365 days = RM4.81

Total Cycle Interest = RM12.33 + RM4.81 = RM17.14

Revolving interest = RM17.14

Repayment in this period = RM50+RM17.14=RM67.14

From the example, person X needs to pay a cyclic interest of about RM17 per month. Although the RM1000 arrears by person X can be repaid in 20 months, it is calculated by the cyclic interest of about RM17 per month. In this 20 months, person X needs to pay interest of up to RM340. In other words, person X consumes RM1000, and the amount that he needs to pay after 20 months is RM1340.

If the billing date is 7th of the month and the repayment date is 25th of the month, and you spend RM1000 on the 7th of the billing day, because the billing date is the next day which is the 8th, so your consumption on the 7th will appear on the 7th of the next month. On the bill, it can be repaid at the latest on the 25th of the next month, and there is a 47 day interest-free period.

If you are spending RM1000 on the 6th of the month, this consumption will appear directly in this month's bill. It will be repaid before the 25th of the month, and you will spend one day in advance, and the interest-free period will be only 20 days. On the day of billing or after credit card spending, the longest the credit card interest-free period.

For my five years financial planning, the first year is my University life. In this year, my main income was from PTPTN and my parent. The way that I use the money is based on two ways. All expenses was meet my own needs and ensure quality of campus life. If there are some balances, so I have some initial funds to invest in financial management, so that I can enter the financial field early.

For next two year which is I fresh graduated and became an office worker to a company. By the lower salary that is take, there are a lot of payment that I need to pay such as transportation fee, rent, meal fee, loan PTPTN and so on. I will saving about 5% from salary in bank each month and the remaining was for emergency needed. In this two year, I still need the financial assistance from my parent, because of the unstable money expenditures. If possible, I will finished the payment of loan PTPTN to reduce the interest that needs to be repaid by the money support from my parent.

In year 4, although the income pattern at this stage has increased, the income level is a relatively low level among the working-class people. Therefore, the necessary expenditure has a considerable proportion relative to income, but it can basically meet the needs of life. I will minimize non-essential costs and use more funds for all aspects of long-term investment and savings. The savings in bank will increase to 10% of monthly salary and continuous the investment.

In the low-income, low-consumption, low-investment stage, which ended in the early stage of work, with the increase in work and life experience, it has accumulated considerable experience in bond stock investment, and its risk attitude and affordability have also been greatly improved. In year five, I can buying a car by applying for a loan. Savings and investment will continue implemented in this year.