A young couple we met with recently, Sam and Mel, wanted to make sure they were doing the best that they could with their savings.
They were currently both working, and were able to save after paying their bills and their mortgage repayments. Their only debt was their home mortgage.
In the next few years they were keen to start a Family, and didn’t know if they would be able to continue to save on one wage for a few years.
They wanted to know if they should increase their super, or invest in something else while they could afford to.
Retirement seemed like such a long way away for them, and a quick review of their super showed that they could contribute a relatively small amount now every pay, compared to a larger amount if they waited, to achieve the same result at retirement.
That still left a healthy amount every pay day to save or invest.
After discussing their options, they decided to set up a mortgage offset account.
A mortgage offset account is a savings account linked to your mortgage. The bank charges interest on the mortgage minus the balance in an offset account. So the more you have in an offset account, the less interest you pay to the bank. This could mean you could pay the mortgage off years earlier, saving thousands of dollars in interest payments.
Savings added to an offset account can be accessed at any time, so your money is not locked away and remains accessible in case of an emergency, or for another investment, or for spending on a holiday or Children’s future education.
As you don’t physically receive the interest earned on the offset account, you also don’t pay tax on the interest you would have earned in another type of savings account.
Sam and Mel were not sure how long they would be able to continue to save, and were not sure when their next large investment may be, or whether it would be another property, or shares or anything at all.
A mortgage offset account therefore was a smart decision. They would remain flexible, pay less tax on interest, pay less interest on their loan, and pay their home off faster.
The end result was a lot simpler than Sam and Mel expected.