- Home Loans
Smart ways to save with an Offset Savings Account
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.
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.
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