100% Offset vs High-Interest Savings Account
During the younger years, when you’re starting out and don’t have any debt it probably make sense having a regular transaction account for everyday expenses and keeping your savings in an interest-earning account.
However, further down the line, as you move into the wealth creation years, it’s time to seriously reconsider your options. It’s a time when you may have the most debts, like a mortgage, car or personal loans. It’s also a time when every hard-earned dollar counts.
Having a 100% offset account is one of the best home loan features you can have to help save on interest payable and reduce the term of the loan.
Why should you put your savings into an offset account rather than a high-interest savings account? You’re missing out if you’re not doing this already. Here’s why.
You save on interest
Pooling all your income and savings into a 100% offset account linked to your home loan ‘offsets’ your loan balance. Because interest is calculated daily and charged monthly you save on interest. For example, if you have a $400,000 mortgage and there is $40,000 in your linked offset account – you will only pay interest on the balance of $360,000.
This means that the savings you keep in your offset account are always working for you, while remaining easily accessible in case of emergency or other unforeseen circumstances.
You save on tax
The interest you earn on a high-interest savings account is considered as income and added to your taxable income for tax return purposes. Whereas the interest you save with an offset account is not subject to tax as it’s considered as savings.
To summarise, having a 100% offset account feature with your home loan is one of the best ways to make your interest earnings work to help you pay off your home loan sooner. The interest saved with an offset account generally far outweighs the benefit of interest earned by keeping your money in a separate high-interest earning account.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that. Check our budget planner calculator online.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage.