“So I’m wondering how my local supermarket can offer better returns than the bank. I’m guessing it comes out of its margin on the groceries.”
Pak’nSave have a Christmas club card that gives you 6.4% simple return (not compounding) after 10 months i.e any money loaded on to the card between January and February will be worth 6.4% more when you access it in December (money loaded after Feb has a lower rate of return). My current budgeted monthly cost for groceries is $800. If I load that on to the credit card now it will turn into $851.20 in December. That extra $50 is enough to cover some of the treat items I end up buying for Christmas, certainly enough to keep my ham fiend of a husband drowning in glazed pork for the season.
To put it in perspective $800 in my banks saving account (which has monthly interest and compounding) would grow to $806 with the extremely generous interest rate of 0.75%. But that is before tax, so lets say more like $804. Not exactly thrilling. Or I could put it in my Rabosaver for a whopping 2.25% return netting $818. (Again its before tax though!)
All these calculations make me think I’m mad keeping anything but the bare minimum in cash, its not really earning its keep!
Currently New Zealand also has super low inflation the and buying power of a dollar doesn’t change much over the year. This makes me feel better about keeping a months grocery budget tied up in a gift card for 10 months.
Pak’nSave has one of the best Christmas savings clubs I’ve seen for a couple of reasons. You can spend the money at anytime, if you need the money before December you can spend it at the store. Sure you can only spend it at Pak’nSave, but you are not locked into a pre-determined set of goods like some of the Christmas hamper clubs, so you can buy what you usually buy. Another bonus is that the increased spending power isn’t taxed.
Down side is taking that $800 off the table for investing and budgeting now. Then in December that $800 that would usually go on groceries should in theory go back into savings with a net gain of $50. Or I could load $753 now and it would net $800 on the card for December groceries. Take a $47 discount or have $50 more to spend in December? Other risks include inflation running rampant and my $800 is only able to buy a loaf of bread (unlikely) or that PaK’nSave go bankrupt (very low risk). What if I lose the card? Well as long as you register it on their website you can deactivate lost cards and order replacements.
Another of New Zealand’s supermarkets offers exactly the same returns with their scheme but they are much a more expensive grocery store than pak’nsave. Also they have a few fancier gourmet product lines that I’d rather not get tempted into buying!
What do you think? Is it worth loading it up with my December grocery budget?