High term deposit vs offset

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

 

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.

 

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%

 

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.

 

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.

 

You think this mortgage fund cant lose value?

 

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

 

Have you done the math on the post tax comparison?

 

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.

 

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....”

 

You might not get the funds back at all.

 

You should watch The Big Short

 

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.

 

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?

 

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.

 

it saves you interest but not money.

 

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.

 

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

 

If its a PPOR loan that changes things.