Options to temporarily place extra funds

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?

 

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.

 

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?

 

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.

 

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

 

Yep the higher the return the better.

 

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

 

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

 

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.

 

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

 

Thanks for prompt reply..thot it was too good to be true!

 

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

 

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%....