How can I best use my offset account
Using an offset account effectively can help you save on interest payments on your home loan. Here’s how you can make the most of it:
1. **Deposit Funds**: Transfer your salary or any surplus cash into the offset account. The more money you have in there, the less interest you’ll pay on your mortgage.
2. **Keep It Active**: Regularly deposit any extra income or savings. Even small amounts can add up over time.
3. **Limit Withdrawals**: Try to minimize withdrawals to maintain a higher balance. This maximizes the offset effect against your mortgage.
4. **Set Up Automatic Transfers**: Consider automating your savings to ensure you consistently contribute to the offset account.
5. **Review Interest Savings**: Keep an eye on how much interest you're saving each month by using the offset account, and adjust your strategy as needed.
6. **Combine with Other Savings**: If you have multiple savings accounts, evaluate whether moving funds into your offset account is more beneficial.
7. **Replicate your purposeful buckets **: If you have a great banking habit which involves splitting your money into varied "buckets", say a bills account and a holiday account - multiple offsets can replicate this structure with the interest saving benefit applying to all the accounts.
8. **Understand Fees**: Be aware of any fees associated with your offset account, and make sure it aligns with your overall financial goals.
9. **Offset against an investment loan**: An offset account against an investment loan - if you have no personal debt - is a necessary way to keep your savings separate from the loan itself, and keep your accountant happy.
By actively managing your offset account, you can potentially reduce your loan term and save on interest costs.
The Key factor is, to make an offset account work you need to have some money sitting in the account - generally you won't see a benefit if you have less than around $6,000 in the account at any given time. More than this if the account attracts a hefty fee - and some do, for example annual fees can be around $400 a year.
For this reason an offset is not for everyone, say, you may have the kind of banking habit where redraw will save you more money - and there's no point in opening an offset and paying the fee.
In this instance you have two choices;
You could continue to use your existing bank accounts, especially if they are fee free
or, you could open a no fee account with your lender which doesn't offset - but gives you the benefit of having all of your accounts on one login.
Offset accounts are a great tool for some, and totally unnecessary for others. It all comes back to your good banking habits & what suits your lifestyle
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