High term deposit vs offset

Discussion in 'Investment Strategy' started by Investor_84, 21st Nov, 2019.

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  1. Investor_84

    Investor_84 Well-Known Member

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    Hi what is everyone’s view regarding parking all your offset to a high interest instead. For example la Trobe pays 5.05% but I’m saving 4% interest parking the funds in my homeloan offset wouldn’t it make sense to put it with la Trobe? Pros and cons anyone?

    https://www.latrobefinancial.com.au/Investors/12MonthTermAccount
     
  2. Trainee

    Trainee Well-Known Member

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    Thats not a term deposit. Looks like a mortgage fund?

    Why would there be an actual term deposit that pays 5 in this environment? If it looks too good to be true......

    Was the mortgage your offset is against used to buy ppor or ip? Tax matters here.
     
    Last edited: 21st Nov, 2019
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  3. Investor_84

    Investor_84 Well-Known Member

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    IP But doesn’t really make a difference because you are earning higher interest compare to saving interest if you kept it in the offset which in my case I will be saving at most 4%
     
  4. Trainee

    Trainee Well-Known Member

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    It makes a difference if its ppor. 4% non deductible interest v 5% taxable income.

    anyway thats not a term deposit so the risk is different. You might as well compare buying shares for dividends v offset.
     
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  5. Investor_84

    Investor_84 Well-Known Member

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    Ok thanks for that. I did think about comparing with dividends but i feel there is more risk with that because the shares can potentially lose value and there is no guarantee the dividends will be as attractive at the time I buy shares compared to say a year later.

    aware there may also be risk with Latrobe but just not 100% sure what the risks are if I use my offset investment funds where I am saving 4% interest compared to earning 5% interest. Technically I will be earning 1% interest on the funds I do put in to the 5% with Latrobe but it’s more the post tax whether it’s still worth it.
     
  6. Trainee

    Trainee Well-Known Member

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    You think this mortgage fund cant lose value?
     
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  7. Investor_84

    Investor_84 Well-Known Member

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    Oh so the funds i put in with them for a year could be less once i eventually withdraw them? Sorry im still new to this so apologies if its a silly question :)
     
  8. Morgs

    Morgs Well-Known Member Business Member

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    Have you done the math on the post tax comparison?
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    You most likely become an unsecured creditor. All of the money is at risk vs safe as houses in the offset account. Check out previous success stories eg: estate mortgage - https://www.smh.com.au/money/investing/spanner-in-the-works-20120925-26hww.html

    Plenty of other ones around too.
     
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  10. Marg4000

    Marg4000 Well-Known Member

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    Wow! Your heading got me excited for a nano-second.

    A term deposit around 5% - when the best advertised rates are around 2%?

    Sadly the link is NOT a term deposit and your capital can shrink or disappear.

    Just proves the old saying “if it sounds too good to be true....”
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You might not get the funds back at all.
     
  12. The Y-man

    The Y-man Moderator Staff Member

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    You may not even be able to withdraw - it is up to the fund manager.

    Make sure to read the fine print for the product:

    The rates of return from the Credit Fund are not guaranteed and are determined by the future revenue of the Credit Fund and may be lower than expected.

    Investors risk losing some or all of their principal investment.

    An investment in the Credit Fund is not a bank deposit. Withdrawal rights are subject to liquidity and may be delayed or suspended.

    https://www.latrobefinancial.com.au/File/Pdf?fileDataId=f0fcc3bb-392d-4ad0-a418-1bd600cd83ce

    The Y-man
     
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  13. shorty

    shorty Well-Known Member

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    You should watch The Big Short
     
  14. TSK

    TSK Well-Known Member

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    are you saving by having it in offset? i did some numbers recently and found that I needed 90k in an offset before it actually saved me any money.
     
  15. Marg4000

    Marg4000 Well-Known Member

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    You should start saving from the first dollar!

    Obviously the more you have in the offset, the more you save. Are you saying that the first $90K in your offset account saves you no interest?
     
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  16. TSK

    TSK Well-Known Member

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    I found that it's a ratio, offset based loans often have higher interest rate vs a basic loan. depending on on how large the mortgage and if you are paying a premium from your offset feature you maybe better off with standard redraw account and $ in high interest account or some other investment vehicle until the break even point.
     
  17. TSK

    TSK Well-Known Member

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    it saves you interest but not money.
     
  18. Marg4000

    Marg4000 Well-Known Member

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    You may not get cash in your hand, but it IS saving you money.

    Instead of paying you interest, that amount is being credited to your loan, effectively making an extra payment on your behalf.
     
  19. TSK

    TSK Well-Known Member

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    Try punching in figures using this link. Use your offset as a lump sum month 1. I used figures where offset loan was 3.49 (macbank) vs 2.94 (BoM). .5 makes enough of a difference to not bother with offset unless it was sizable. If you had an offset with zero in it and hoped To put in extra to reduce interest it would end up costing you more. Sure if you got an offset with lower rates thing might play out differently.
    Extra & Lump Sum Payment Calculator play with
     
  20. Trainee

    Trainee Well-Known Member

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    If its a PPOR loan that changes things.