Having a salary account can be useful in times of greater financial tightness. Find out how salary domiciliation works.
THE salary domiciliation it can come in handy when unexpected expenses arise, as by making it possible to anticipate part or all of your salary, it allows you to have extra liquidity for specific needs. But, how does it work and what are the advantages and disadvantages of having a salary account?
Paycheck domiciliation: how it works and main advantages
The current account differs from the current account in that it provides a line of credit with a ceiling, whose value is based on your salary. That is, the banking institution can anticipate 100% of your salary or just a part. Everything will depend on the agreement you establish with the bank when opening an account.
Thus, the amount you have in your bank account can “double” at the end of the month in a kind of financial reserve in case of need (this is the so-called “overdraft facility”). Some banking institutions even allow a credit of up to three times the value of the customer’s salary, which can be quite attractive.
In practical terms, the amount spent over and above the salary is negative in the account and will be deducted (as well as the corresponding interest) from the next salary, as soon as it is deposited.
In the process, it is important, however, to pay attention to the interest rates that are charged and to analyze all the items of the Standardized Information Sheet (FIN). Remember that the maximum rates that banks can apply to bank overdrafts are set quarterly by the Bank of Portugal. For the first quarter of 2023, the maximum rate is 15.7%.
In addition to having one more salary available for unforeseen situations, many banks also offer exemption from maintenance costs of the account and one spread attractive when it comes to resorting, for example, to a home loan.
and care to be taken
According to the Portuguese Association of Banks (APB), the use of this ceiling “it is the same as spending in advance an amount corresponding to wages that are yet to be received”. That is, if this use is not taken care of, it can become a real trap for any budget.
In most cases, this line of credit assumes a higher APR than that of a personal loan and, therefore, it is important to compare different proposals before proceeding to sign a contract of this type.
To avoid surprises, settle this debt as soon as possible to avoid paying interest rates and commissions on using that amount.
Article originally published in July 2019. Last updated in January 2023.