INSIGHT

Smart ways to save with an Offset Savings Account

An offset savings account is a remarkably useful tool. A transaction account that’s linked to your home loan, it lets you ‘offset’ the balance against the value of your loan.

Because it reduces the interest you pay, a home loan offset account means you can enjoy valuable savings on the long-term cost of your loan. However, in today's super low rate environment, it pays to rethink how you use your offset.

When offset loans were first introduced, homeowners faced considerably higher interest rates than we enjoy today. So it made good financial sense at the time to have as much cash as possible in a linked account to reduce longterm interest charges.

Fast forward to today, and homeowners are paying record low mortgage interest rates – in some cases, they have dropped to below 4 percent1.

For many homeowners, using cash stores in an offset account to pay regular bills could provide better value for money than the traditional use. Let's see how this could work.

For many homeowners, using cash stores in an offset account to pay regular bills could provide better value for money than the traditional use.

Pay down high interest debt

If you have an outstanding balance on your credit card , chances are you will save far more in card interest by using funds held in an offset account to pay down all or part of the debt. In fact, with card rates often exceeding 20 percent while home loan rates are below 6 percent, using savings held in an offset account can be a money-smart strategy.

Similarly, if you are in the market for big ticket purchases like electrical appliances, a family vacation or home renovations, using cash in your offset account could save you far more than putting these purchases on a credit card.

Secure early bird discounts on other bills

You can also use cash held in your offset account to save on your regular bills. Many service providers offer valuable discounts to those who pay early.

For instance, if you are paying home and contents insurance premiums monthly, chances are you'll enjoy a discount by paying a single annual premium. The balance of your offset account offset account can provide the means to do this. Other major costs like school fees can also attract upfront payment discounts. Often these savings will eclipse the reduction in home loan interest charges you would get if you were to retain cash in an offset.

Identify possible savings targets

The key to making the most of your home loan offset account lies in careful planning and number crunching. Review your personal finances to look for areas where you could make better use of the cash savings. It’s all about thinking outside the square to maximise the potential gains provided by today’s record low interest rates.

Important Information:

1. http://www.news.com.au/finance/economy/interest-rates/home-loan-borrowers-warned-not-to-get-ripped-off-as-interest-rates-plummet/news-story/2aa5a2897c7dca21bf1eaa7b030d32fd

Important Information:

Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.

This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it.

Investments are not deposits or other obligations of, guaranteed, or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risks, including the possible loss of the principal amount invested. Investments are subject to risk, including loss of income and principal. Past performance is not an indicator of future performance. Due to exchange rate fluctuations, you risk losing capital if you invest in foreign currency. Some products are not available to US persons and may not be available in all jurisdictions.