Offset accounts – maximising the benefit with credit cards

The key to maximising an Offset Account is to maintain as high a savings balance as possible.

The first step as I’ve said is to have all your income paid directly into your Offset Account. Then, it’s a matter of keeping as much of your money in the account for as long as possible.

Key Point: One of the most effective tools for accomplishing this is a credit card with a long interest-free period. Look for a lender offering 55-days interest free.

But don’t fall into the trap of overspending or you’ll start getting charged very high interest on the credit cards and then you are worse off.

While it may seem strange to use a credit card to save, putting as many living expenses as possible on a 55 day interest free card instead of immediately paying them from your Offset Account is very worthwhile. The interest-free period allows you to hold your money in the Offset Account for as long as possible, maximising your interest savings. You just need to make sure you pay off your credit card debt in full before each interest-free period runs out.

You also need to ensure that you are disciplined with your expenses, payments, and timing. If you are tempted to put too much on the plastic, the credit card tactic can easily become a debt trap.

If the temptation to overspend concerns you, you may be better off injecting any spare funds straight into your loan repayments instead of turning to an Offset Account.

Look for an Offset Account that still gives you the standard benefits of a regular savings account: ATM and EFTPOS access as well as telephone and internet banking.

Although the aim of an Offset Account is to maximise your savings, you still want to be able to access and use your funds as you would with any regular savings account.

Example: using credit cards to save

If you have an income of $6,000 coming in every month, and you used all of that to pay off your credit cards 55 days later, you would save an additional $61,858 in interest over the life of your loan, and you would never have to pay a single extra cent in repayments.

Lenders often charge a higher home loan rate for an Offset Account. Ask your broker to help you shop around for the most competitive option to suit your circumstances.

If you are still paying off your home or an investment property, but also managing to sock away some savings, an Offset Account could help you be debt-free faster. Talk to your broker about your circumstances to find out which options may work best for you.