Offset accounts
- Thread starter stumunro
- Start date
Banks have a rule of thumb that says 3-4 products and you'll be too commited to them to move elsewhere. A home loan, credit card, offset account/transaction account... Asside from the extra income, why do you think they like to flog insurance?
For the most part, offset accounts don't cost the banks that much anyway. Most people tend to spend the funds they have in them the same way the do if they live out of a line of credit account.
If people see they've got $2,000 in their offset account they tend to spend. People do this with their savings accounts as well. Most people save money better if they put some in their savings account and some straight onto their separate home loan. Out of site is out of mind, the banks know this and would prefer that your money is visible where it can burn a hole in your pocket, so they can charge you more interest.
Despite this offset accounts remain an extreamly useful tool for investors. You've just got to have a savings dicipline.
For the most part, offset accounts don't cost the banks that much anyway. Most people tend to spend the funds they have in them the same way the do if they live out of a line of credit account.
If people see they've got $2,000 in their offset account they tend to spend. People do this with their savings accounts as well. Most people save money better if they put some in their savings account and some straight onto their separate home loan. Out of site is out of mind, the banks know this and would prefer that your money is visible where it can burn a hole in your pocket, so they can charge you more interest.
Despite this offset accounts remain an extreamly useful tool for investors. You've just got to have a savings dicipline.
In addition to what PT said, and on a slightly different slant
I could be wrong so maybe the economists and bankers can correct me
In the current climate being able to lend off " depositors funds" is a better funding propostion for banks than securitising in offshore markets, it costs less.
That being the case, a 100 k loc limit with 0 owing,isnt as useful to the bank as 100 k IO term loan with 100 k in the offset.
Its funny isnt it, banks dont like to lend to people who fund debt with debt, but it smells to me like thye might play that game themselves
ta
rolf
I could be wrong so maybe the economists and bankers can correct me
In the current climate being able to lend off " depositors funds" is a better funding propostion for banks than securitising in offshore markets, it costs less.
That being the case, a 100 k loc limit with 0 owing,isnt as useful to the bank as 100 k IO term loan with 100 k in the offset.
Its funny isnt it, banks dont like to lend to people who fund debt with debt, but it smells to me like thye might play that game themselves
ta
rolf
an offset account can be a useful tool, and like most things can be used for good and evil.
MUHUHAHA.
Lenders know most people will not pay off the credit card in full at least one month of the year (usually around xmas time), and the full balance of your home loan savings shows up every time you go to the teller, even if say you happen to go to the teller at the casino.... I only every recomend it if its cost neutral, ie that it doesnt cost extra in either fees or interest rate, and I spend a bit of time talking first home buyers out of an offset account and using a redraw instead, at least for the first few years.
MUHUHAHA.
Lenders know most people will not pay off the credit card in full at least one month of the year (usually around xmas time), and the full balance of your home loan savings shows up every time you go to the teller, even if say you happen to go to the teller at the casino.... I only every recomend it if its cost neutral, ie that it doesnt cost extra in either fees or interest rate, and I spend a bit of time talking first home buyers out of an offset account and using a redraw instead, at least for the first few years.
