Options to temporarily place extra funds

Discussion in 'Investment Strategy' started by Investor_84, 26th Jul, 2018.

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  1. Investor_84

    Investor_84 Well-Known Member

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    Hi,

    I am waiting for an off the plan to complete expected around end of September early October.

    My question is all my current investment loans are on fixed 4.09% IO. I do not have any outstanding amount on my Owner Occuper loan.

    I called my bank to see how much I can save if I set up a offset for one of my fixed rate investment loans (or MISA they call it) to park my extra savings there till the off the plan nears settlement then I can use the funds for my deposit. They advised it will only be a partial offset if I set it up against a fixed loan (only 1.5% off the rate so 2.59% will Still be charged).

    What would be the most ideal option from a tax perspective?

    I was thinking of parking the extra cash temporarily in a high interest savings account which pays 3.05%. The extra cash may be around $20,000 assuming the off the plan is all done by end of September.

    Shares is another option but I don’t want to risk it as I need the cash when settlement nears.

    Any other suggestions?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    You don't give any info for anyone to comment on the tax situation but all you have to do is to find something which pays 3.06% or more and you should be ahead.
     
  3. Investor_84

    Investor_84 Well-Known Member

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    Thanks Terry. Sorry wasn’t sure what else I needed to provide from a tax perspective. Happy to provide whatever it is required to confirm the below.

    Just to confirm, so i will be better off earning interest at 3.05% rather than saving 1.5% interest on a fixed loan of 4.09% (effectively paying 2.59%) in this situation right?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    I misunderstood.
    If your interest rate is 2.59% on the loan and you are getting 2.59% in a savings account it would work out exactly the same assuming there is just one person.
     
  5. Investor_84

    Investor_84 Well-Known Member

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    No I will be getting 3.05% on a savings account or pay 2.59% interest.

    Sounds like earning 3.05% is probably better. Just wasn’t sure if from a tax perspective if it makes any difference to what’s better.

    Thanks again terry appreciate it
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    Yep the higher the return the better.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    But, if you have a spouse on a different income then things would be different.
     
  8. virgo

    virgo Well-Known Member

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    More importantly, where /which bank are you getting 3.05% from?:)

    The best i can get is 2.8% from a term deposit with Wescucks bank and that's for a FD of 12 months and a lot of oohing and ahhing:confused:
     
  9. Investor_84

    Investor_84 Well-Known Member

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    How so?

    I’m on 140,000 gross and she’s on 90,000.

    I’m opening up the savings account under my name though.
     
  10. Investor_84

    Investor_84 Well-Known Member

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    Oh it’s just with Citibank introductory offer for 4 months which I only need for 2 months really till I settle.
     
  11. virgo

    virgo Well-Known Member

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    Thanks for prompt reply..thot it was too good to be true!:p
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    What is your taxable income? after expenses?
    the $90k+ jumps to 37%, under that is 32.5%
     
  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    If the fixed rate was a year it may pay to spend (some of) the $20K on breaking the loan and chasing variable with a full offset. Then over the time with it in the offset repay the shortfall to come back to the $20K with the lower rate savings.

    At 3.05% the net earnings after tax will be 1.86%....