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More than $250k in the offset?

Discussion in 'Property Finance' started by FirstTimeBuyer, 10th Apr, 2016.

  1. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    I understand the general benefits and flexibility of having an IO mortgage and then stashing your savings into an offset; especially if you have a PPOR which may become an IP in the future. However I am wondering how people mitigate the risks of having more than $250k in the offset against your PPOR.

    My understanding is that the Aus gov only guarantees $250k if the bank was to go under. So what do you do if say you have $1m saving that you want to put in your offset? I do not have anything near this amount, nor do I have a PPOR but it's something that I've been wondering about.

    Do you end up paying off the principal to keep the amount less than $250k? Or do you just take the risk of having more than $250k in the bank with the belief that Australian Banks will be ok? Or are there other sound strategies to minimize non-deductible loans while not exposing yourself to the risk of losing your savings?
     
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  2. joel

    joel Well-Known Member

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    Put the rest in offset account #2
     
  3. Redom

    Redom Mortgage Broker Business Member

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    If you only have one offset with that bank and your genuinely worried that it won't be protected (very minimal risk) - than perhaps set up another offset account with the bank your with. Will depend on your lender and the flexibility they have, but they majors will allow this with their packages.
    Divert extra funds in there.
    Perhaps explore other investment strategies too.
     
  4. bumskins

    bumskins Well-Known Member

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    I hope you don't mean with the same ADI?

    Banking | ASIC's MoneySmart

     
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  5. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    @Redom - Sorry not sure if I'm missing something but if you had multiple offset accounts with say CBA it would still be multiple accounts the same ADI would it not?
     
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  6. datto

    datto Well-Known Member

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    The 250K government guarantee is per ADI
     
  7. jaybean

    jaybean Well-Known Member

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    I never knew about this 250k rule. It doesn't worry me, you'd have plenty of notice, like a war or financial meltdown would have to preced it surely.
     
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  8. datto

    datto Well-Known Member

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    What if a financial meltdown occurred overnight as you slept?

    You get out of bed, log on internet banking, check your balance and spit your morning coffee over the screen.
     
  9. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    Thanks. The 250k per ADI is confirming what I had assumed. What I'm more interested in is what the enlightened members of PC do regarding this?

    It is very unlikely but if you had $1m+ or so saved over a decade or more in your offset you'd want to manage risks associated with it.
     
  10. York

    York Finance Broker Business Member

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    Anyone who is the fortunate situation of having over 1m in an account would probably mitigate their risk of a banking crisis and spread their funds across multiple ADIs. This is of course if your funds had to be in bank accounts. Alternatively perhaps have the funds invested elsewhere where they could possibly be more productive depending on your profile.
    But in saying that, although there is risk in all investments the actual risk of a major institution losing your funds is extremely low in Australia.
     
    Last edited: 10th Apr, 2016
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  11. datto

    datto Well-Known Member

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    What if the govt went broke and couldn't honour the guarantee? And all the insurance companies went broke and couldn't honour their part?

    There'd be bedlam.
     
  12. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    I agree with your points. However if you had a PPOR I'd assume you'd want to minimize the non-deductible debt of the mortgage by either paying off principal or having your savings in the offset. The latter seems like the better alternative as it gives you the flexibility of transferring your savings to your new mortgage if you were to buy a new PPOR (without selling your old PPOR). The only caveat with this is the exposure to the risk of having all your cash being lost if the bank was to go under.

    So my question is, is there some way to keep your flexibility by not paying off the principal but reducing your non-deductible debt whilst not being exposed to having more than $250k per ADI by some creative way of structuring your loan? Or do we really only have two choices when it comes to reducing non-deductible debt:
    1) Paying off the principal on your mortgage so that you don't have more than $250k sitting in one ADI at the cost of reduced flexibility/choices (if you were to buy a new PPOR)
    2) Accepting the risk of having more than $250k cash sitting in your ADI but giving yourself the flexibility
     
  13. York

    York Finance Broker Business Member

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    As far as I know, there are no other alternatives other than the ones you mentioned.
     
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  14. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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  15. JacM

    JacM VIC Buyer's Agent Business Member

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    Remember that some ADIs own multiple brands (eg banks). Some examples that are noted here Australian Bank Mergers and Acquisitions: Who owns my bank? | finder.com.au are :
    • National Australia Bank & UBank
    • Adelaide Bank & Bendigo Bank
    • Bank of Melbourne & Westpac & St George & RAMS
    • Bank West & Commonwealth
    So it's important to keep across who is under which ADI as mergers and acquisitions take place. Not just to be aware of your risk exposure in a financial collapse where the $250k guarantee comes into effect, but also to be aware of who is controlling your assets should you start to struggle a bit financially, such as if you defaulted on mortgage repayments.

    Something you could do to expedite your actioning of issues should you see them coming is to have a couple of small fee-free accounts with a collection of banks just for the sake of having an account open and at the ready that funds can be evacuated into when impending doom approaches.
     
  16. dabbler

    dabbler Well-Known Member

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    Like that poor bloke that lost his billions from netbank........lol


    Not all banks offsets are actually considered accounts either, they have no guarantee, but what would happen in a crisis is they would apply that cash against the loan.

    Also unless your intending to spend it on something, at some point you would be better off just applying cash to the loan to pay it down.

    If it is a real crisis, why does everyone think they would not just do the same as greece and take money and freeze accounts, I mean all bets are off at that stage, You could see Turnbull or Shorten or eqv just turn around and say, well sorry, but we simply cannot do anything, it is a crisis.
     
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  17. Cactus

    Cactus Well-Known Member

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    I can't see the issue surely if they take the offset from you then you lose the associated debt. Bet change to you zero.
     
  18. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Image a world where the guarantee needed to be actioned - I'm pretty sure that'd trigger a complete financial collapse in Australia.

    If you're truly concerned about this being a potential reality I would be looking at more bearish defensive assets.
     
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  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Most valuable items in that prepper environment.......

    • 12 gauge and a few boxes of mixed shells

    • Carrot seeds

    ta

    rolf
     
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  20. datto

    datto Well-Known Member

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    Just take the cash out of the bank and hide it somewhere. .