Ever asked yourself the question: “Should I Be Putting Money in a Savings Account If I Have a Mortgage?”
We get this question a lot. Is it something that has played on your mind?
Of course, personal circumstances always differ, but the short and simple answer to this question is ‘No’.
I often have people tell me they like to keep a savings account they credit funds to each payday as part of their budget. The savings may be intended for a family holiday, that new big screen TV, a new car, or perhaps as a lump sum to throw off the mortgage when it next comes due.
There is nothing wrong with saving for things, in fact, I encourage it. But it’s where we save that makes the difference. As in, what kind of account we transfer our hard-earned money to in order to get the best return.
Let’s look at it like this:
You want to save $10,000, so you put it into a savings account or term deposit earning you 3% (if you’re lucky, these days). If you leave $10,000 in that account for a whole year you’ll earn a whopping $300 for that entire year. You then get taxed on this $300 at the rate of say, 30%, so $90 goes to the IRD, and you’re left with a measly $210.
You also have a mortgage on your own home at an average rate of maybe 6.00%. Each $10,000 you borrow at this rate is costing you $600 per year in interest. No tax break, no offset.
$600 Cold. Hard. Cash.
Straight out of your pocket.
Now if you look at the whole situation, you’re physically giving your money to the bank for the pleasure of earning $210 per year, and they’re handing that money straight back to you in the form of part of your home loan, and they’re charging you $600 for the pleasure.
It’s spending a dollar just to save 30 cents.
So, how does this affect your pocket?
With a total Loss of $390.00.
Huh!!?? But I saved money in the bank each week, and you are telling me I’m worse off??
But, there’s a way to beat this system, and it’s actually very simple. Of course, the bank is unlikely to show you how to reduce their profit and put money back in your pocket. But then that’s what we’re here for.
Give INNOVEST a call today on 09 280 4700, and we’ll get one of our advisers to visit you, and show you how you can structure your finances in a way that works better for you, instead of for the bank.