Why You SHOULDN’T Prepay Your Monthly Bills

JD: ING has free bill pay, you don’t need to pay that US$5! NO ONE does, as ING is free, no minimum, and no monthly fees.

and no, i do not work/get paid by ING.

Lots of CU’s have free bill pay. I’m shocked they are still charging for it. We went free years ago!

Why not go ahead and prepay when you’ve got the extra cash, but then from then on start making one monthly deposit to the high-yield account, in the amount that you would have paid? That way, 1.) you’re still earning SOME interest (and really, how much can the difference possibly be?), 2.) you get the low-hassle benefit of having your bills paid, and only making one transfer per month 3.) you can’t run the risk of false lifestyle inflation because that money is being whisked away into savings and 4.) if something comes up, you have your monthly “payments” in savings as a sort of cushion (which you shouldn’t really need because you of course have an emergency fund already established, right?)

Seems pretty win-win to me.

I’m on the phone with them as i write this…

Electric is the only way to do bill pay.
[they wanted to have a media rep get back to me, but i told him it was for myself. ]

You can have Their accounts pull money from another account, such as your CU, at specific times of the month. You could also have it transfer money between the ING savings to the Electric orange, if you wanted to maximize your savings.

The key, is that they can only pull money from a CHECKING account into an ING account. That seems to be the only “catch”.

For anyone out there thinking of Going with ING, their phone people have always been very helpful to me, and have always been quick to pick up the phone. I haven’t set up and account with them yet, but am planning to very soon.

EDIT:
From their website:

http://home.ingdirect.com/products/products.asp?s=OrangeSavingsAccount
Pay Yourself First!
The Automatic Savings Plan allows you to automatically have a fixed amount of money regularly transferred to your high interest Orange Savings from your linked checking account. You will be saving your money effortlessly and will have money for a rainy day or to achieve your dreams. You can either call us or set up your Automatic Savings Plan on this website. You specify how much money you would like transferred, and how often you would like it moved. This is the simple, easy way to really grow your Orange Savings Account.

http://home.ingdirect.com/faqs/faqs.asp?s=Deposits
How do I make deposits into my Electric Orange?
You can make deposits by setting up a Direct Deposit into your Electric Orange. You can also transfer money from another ING DIRECT account or a linked checking account into Electric Orange. This is done by clicking on the Transfer Money tab while you’re logged into ingdirect.com or by calling the Interactive Phone Service (1-888-ING-7868). Or, you can mail in checks to us at ING DIRECT, P.O. Box 60, St. Cloud, MN 56302-0060. If you choose to mail us a check, remember to write your Customer Number and account number on the front of the check.

@Gwen:

Good idea, but to take it a step further, i encourage the readers to check with their local power company to see if they have free budgeting. It’s hard to estimate what the cost will be if you’re renting each year, but the power company can give you an estimate. Here, it’s free, and they readjust every 6months.

I’ll join the chorus and say that your credit union charging for online bill pay is highway robbery. Bank of America’s online bill payment has been free for years. In fact, BoA used to do just the opposite: you could get a free account in WA state with no minimum monthly balance if you avoided using human teller services by relying on ATMs and online banking instead. (I’m in OK now, where I get a free account just for having direct deposit.)

Tell your CU to get with it.

Most banks now have free online checking and bill paying. I have set up my cable tv, mortgage, and several other fixed expense bills to be paid monthly. I had to time them; e.g., my mortgage gets paid 2 weeks from the other bills so I know I’m covered.

And like Allen says above, some companies will do a checking account withdrawal.

I like setting up automatic payments for the year instead of doing a year’s pre-pay. Unless you can talk the companies to give you a discount for a year’s pre-payment.

JD: My answer to your Q was marked as spam once i put in corresponding links to the ING website.

Short answer for everyone else while that gets cleared up:

Yes, they can take money out at a specific time, but it has to be from a checking account. & the free bill pay is only from the checking, but you can have money transfered into that from the ING savings account as well.

I agree with those that say Billpay should be free. However, I would argue that the $5.00/month is worth it anyway.

It helps you go paperless.
Save some of the money not using stamps.
Bill pay is setup to pay monthly. So if you forget or don’t take the time to go through your bills, you pay on time anyway (just not necessarily the correct amount.

@Freecia:

Thank you so much! I am personally striving to make as many of my bills as possible auto payed. I have my money go from my paycheck into separate accounts automatically, that automatically pay those bills.

You can’t spend money you never “have” and i never miss a bill.

Washington Mutual has both a high yield online savings account plus free bill pay. Checking is free with the regular savings account (where I keep just $1). You can instantly transfer funds between all of your accounts. I find it the best of all worlds – instant access to high yield savings (in person if there is a branch where you live like I have or just online into checking account) and bill pay to do just as you described.

Every single entity that I have to pay each month has an automatic payment plan. My mortgage is the only bill that I don’t take advantage of that with, mainly because I want the flexibility to move that large payment around if I have to. And when it’s time to pay I go to their website and schedule the payment for free.

You don’t need bill pay, you just need to tell each company to come get their money when it’s time. And if you have a rewards credit card, you can actually get a little money back by having the company charge your credit card when it’s time.

I’ve done this for years and have never had a problem with an incorrect billing.

It’s tangential to the current discussion but I’m inclined to point out that there is little reason to stick with a FI that changes for bill payment or atm fees. There are plenty of FIs that offer accounts with those perks as well as high interest, often with low or no minimum balance. The first three that come to mind are: ING, Schwab and CNB-Taylor.

They’re strong enough for me to regret having posted the money hack this morning.

**

I’d like to dissuade you from censoring yourself. I thought all sides of the discussion had merit and if you hadn’t posted it, there is a lot I might not have learned about how other folks do things like this. So keep on being controversial. It is a good thing!!!

One other thing: The alternative to bill pay is auto pay… when the Co. comes for their money automatically.

5 of my bills that don’t fluctuate very much I have set up for the company to come get their money from my checking account, (Electric, Cable, Mortgage, HELOC and IRS.) The 1 that does fluctuate, (Sprint) I bill-pay through SunTrust, (which is free.)

The rest of my bills I pay online at the companies web sites using my debit card generally.

Yes, you can transfer X number of dollars to ING from your regular checking and then use the bill pay. I don’t use the bill pay option as I have it free through my regular bank, so I can’t comment on it, but automatic deposits are easy enough to set up.

That being said, I can understand why you would enjoy prepaying. What I hate about monthly bills is how they keep showing up every month. And sometimes you do get a benefit; when my husband and I were DINKS, we had enough extra cash to pay our car insurance in one lump sum, and we saved about $60/year by doing that. It isn’t a lot, but I know people who switch car insurances for so little. Monthly payments can be confusing and late fees are a pain.

In a perfect world, yes, we would optimize every penny, but sometimes the satisfaction of doing something the way you want to do it is worth the possible risks involved.

“What happens if you prepay a bill and suddenly discover you need the money for some other obligation? Or what happens if you are forced to move? Or your house burns down? You’ve already prepaid, so there’s no way to get your money back.”

Unless you fail to give sufficient notice, companies must refund your balance for canceled services. If you are worried about the notice requirements for your utility/service providers they are required by law to give you that information at your request.

To avoid overpaying in an unexpected situation, you could not prepay on any services that require more than 30 days notice (or whatever you feel comfortable with). However, in the unlikely event that your house burns down, many companies will waive cancellation fees and notice periods with good cause. Even strict cell phone contracts will waive early termination fees if you move outside of their service area.

I used to prepay my credit card bills before I went away for the summer. My credit card won’t let you do that any longer — they say it gives openings to terrorists — ?!?! So now I have to pay online while travelling. This summer I was in places where finding a cybercafe was very inconvenient, and of course I had lost the piece of paper that reminded me when the bill was due — meaning I had a charge for late payment by the time I got on line to pay the thing. Very annoying that I wanted to prepay to avoid just this situation, and instead ended up paying extra. I can’t help but suspect that profit from customers who can’t prepay is more of a motivation for the rule than preventing terrorism.

JD … before getting too wired over the $5 bill-pay fee, consider the -whole- CU against the other places you could place your money.

IMHO, a single $5.00 convenience fee is not a deal-breaker. Especially if the interest rate on savings is good or if some other feature is important to you. (Ie; are they close enough to easily walk to or along your normal daily driving route? Are their hours more in tune with your needs than nearby competing financial institutions?)

The fee that troubles me is the hidden one … having my information so readily available to databases. Were I to use automatic bill paying 1) I had darned well better have the money in a bank account well in advance 2) I am simply handing over that much more of my privacy.

I don’t have anything that needs to be hidden, but I DO want to maintain the right to hide it.

Then, too, you could just do as I did when I was making a heroic effort to avoid bankruptcy and bring my financial house in order when I was a ’20-something’. As soon as the bills come in, write the checks. Deduct the money from your account ledger. Date the envelopes and check once a week to see if anything needs mailing. Those months when you’ve got more money than month, make a larger payment the following month on an interest-bearing bill.

Hmmm … just one late-fee can wipe out a WHOLE lot of the arguments against early payment. Just one. And, once you incur even one, late fees and bank charges tend to spiral out of control. I’ve had a slow-credit of a deposit cost me big bucks (and the second time it happened, it cost that bank a customer … I don’t have time to fight these guys every month!)

My wife and I write out the check and enter it into the ledger as soon as the bill arrives. Then we date the envelope to deposit it in the mail one week ahead of the due date. If the ledger goes in the red, we know it in time to do something about it without getting weirded out.

I use mycheckfree.com, all the bills show up on one site, and I can set them to pay right then, later or on the due date. They email me each time a bill shows up. There are only 2 I can’t pay there and those I can take care of from my bank site. They don’t pay automatically, so I can check the bill and that works for me. The only thing that is automatic is our mortgage, that’s a no-brainer for me.
I used to prepay things for the summer too, but that was before online banking, and everyone was happy to take my money. It was a bit nerve-wracking to figure it all out, but it sure made for a relaxed summer.
And if I read correctly, that was the emotion you were aiming for.
PLUS sometimes if you pay for the whole year, you can get a discount. I got $100 off of our daily paper by paying for the whole year. I always ask nicely, because you never know.

The Netherlands banking system allows you to “empower” utility companies to draw automatically money owned from your account. Alternatively, you may set up a monthly payment, free of charge, and define the period during which it will be active.

Which gave me this idea: setting up a “bills” account. The only constraint this account has is “have enough money every month to cover all bills”. It doesn’t really matter how you finance it – I dump a portion of my monthly income there, and leave a reserve to cover the “variable” bills, such as the mobile subscription. It works like a charm.

If you need to prepay your bills to fool yourself, then definitely use automatic payment. This is great if they let you charge a credit card – more free perks! I currently have this for all my utilities. I have them set up to ping me by e-mail when the bill is ready so I can review the charges, but the bill payment is handled automatically. I do not automatically pay my credit cards, but I do use bill-pay to send my payment. I don’t get charged for this service.

I still have complete flexibility by stopping the withdrawal whenever I want.

There are two downsides to auto bill pay:
1) If you set things up with your vendor, you increase the possibility of id theft if that vendor’s data is compromised
2) If you send the payment through bill pay, your bill pay vendor will pull the cash out of your account when the payment is made, regardless whether it is a check or electronic payment, so you lose the float. OTOH, you don’t pay postage, which is undoubtedly more than the lost interest.

@MikeVx:
I’m sorry, but your concerns are really non-issues. It’s just as easy for your check to get lost in the mail (or the horror storys of CC companies ripping up payment checks to charge you late-fees) as it is for a computer to mess up when to send the bill.

On the plus side, with auto payments, if they DO mess up, you can go after them to remove the late fees (if they are deducting), or to pay you back for them (if they are supposed to have been sending it out). PLUS, you’ve got proof that you intended to pay, which can go a long way, depending on the organization.

As much as some people like yourself, or my mother, distrust the internet for these sorts of things, i distrust people getting my mail and getting my personal data, or checks, &c that way.

Don’t pre-pay your bills. Pre-pay yourself! Put it in savings.

A credit union charges $5/mo for bill pay? Yikes! And I thought Wells Fargo was bad!

I certainly hope you can switch to another credit union or bank that provides free bill pay (thank you, BECU!). However, if $5/mo were still the standard fee that it was a few years ago, I’d think it was still worth it for saving me from having to deal with stamps, envelopes, and check-writing.

Additionally, bill pay payments show up in my online account right away, whereas checks can take several days–even up to two weeks–to show up. Even though I track my accounts daily and religiously in Microsoft Money, it still irks me waiting for a check to post. I want my balance in Money and the bank balance to match always!

I thought of another downside to paying your bills early. What if someone were to scam you? say for example your landlord skips town with six months of your rent. You risk losing a larger amount if you pay over the minimum payment.