Council Rates, Pay once or by 4 instalments?

[unsui888]

So is that time of the year again and the council rate letter just arrived...Damn you Len Brown....

This is the new council rates for this year so you have an option to pay full rate once with a small discount (0.91% in my case) or pay by 4 installments. So it got me thinking, when it make sense to pay up front and when should I pay by 4 installments.

In my bill, the full payment is $2502.50 and you can pay $631.37 every 3 months.

Let's assume I have the cash to do either, so my cash will be 631.37 x 4 = $2525.48 and ,your options will be:

1. Pay the bill in full (2525.48-2502.50)=$22.98 and put the rest of the money into investment (or part of the investment)
2. Pay by 4 installments every 3 months (2525.48-631.37)=1894.11, make another payment every 3 months. Put the money you have on hand into investment and draw it out when you need to pay.

Basically I need to find out what is the my rate of return by the end of the year and decide which option I should take. Also, what is the break-even point between 2 options.

I've list a couple basic investment options and their rate of return.

Online saving account: 0.75% less tax

Serious Saver account: 2.75% less tax

12 months term deposit: 3.1% less tax

Offset Home loan: 5.75%

Stock market: ~9% less tax + fees

I've make an excel file to calculate the ending value by changing the rate of return and find out the breakeven point.

TLDR: Basically, if your rate of return is anywhere over 2.94% p.a. you should pay by installments. Otherwise, you will be better off pay it up front.

https://imgur.com/a/EubpC

Feel free to make a copy and play around. (Graphs not included)
https://docs.google.com/spreadsheets/d/1zs_lRlzvXuI03GmRjISg_deG4DLe-EGxmytDRA3eK20/edit?usp=sharing

EDIT: Typo

 

[tickingclocker]

@unsui888 Too long didnt read. Pay by installments if there is no premium for doing so. More money in your pocket for longer. Use it to offset interest on debts

 

[unsui888]

@tickingclocker TLDT version: Basically, if your rate of return is anywhere over 2.94% p.a. you should pay by installments. Otherwise, you will be better off pay it up front.

 

[tickingclocker]

@unsui888 Read it. An easier calc would be taking the difference of 22.98, divide by your float mortgage and time 100. (22.98/5.75x100)=$399.
Thus if you can keep 399 in your pocket for a whole year you would be winning. Considering your payments are 650/ quarter, its clearly better to go with that.

 

[resjudicata]

@unsui888 I'm intrigued that there's a discount offered for paying upfront. My council certainly doesn't have that -- and in fact I pay my rates/water monthly because it's easier to drop a little every pay.

Interesting math, though, thanks!