The benefits of locking your savings up for longer
Thu Jan 30 14:30:00 AEDT 2014
If you are trying to save a deposit for your first home, you may be finding it challenging to keep a regular flow of savings that you don’t dip into. Locking your money away in a separate savings account or term deposit is an easy way to tackle this problem, and earn extra interest on your nest egg too.
Most banks offer high interest savings accounts which you can link to your regular everyday account, making it easy for you to contribute regular funds from your salary. These will usually earn additional interest to your everyday account, and restrict your transfers out of the account (for instance, you may not be able to use the account to pay bills or your credit card). This will limit the extent to which you are able to dip in to this money for other purposes than savings.
Term deposits are another way you can boost your savings while making it more difficult to access your money. Term deposits lock your money away for a set amount of time – for instance, 1-2 years – while earning what is usually a higher rate of interest than a normal savings account. You will need to ensure you definitely do not want to access this money for any reason though, as you may have to pay fees and charges to withdraw it earlier than the locked in term.
Locking your savings away can help you get to your deposit goal faster, both through the high interest you earn on your initial funds, and through restricting access to money. Remember, the more regular a savings plan you can show when you apply for home loans, the more likely it is that a lender will consider you a good candidate for a mortgage.
Of course, the interest rates you get on term deposits and high interest savings accounts will depend on what kind of cash rate is currently offered in the market. Like mortgage rates, interest rates on savings accounts fluctuate with the RBA’s official interest rate movements. So when interest rates are high, you might want to lock your savings away on a long-term deposit of 1-2 years, but when they are low, you may want to go for a more short-term option if you anticipate rate rises.
If you are saving for a property and are thinking about ways you can earn a deposit, Choice Home Loans can help. Our brokers are experienced in every aspect of the home loan process, and can provide tailored advice on saving and budget management that can help you to achieve your home ownership goal.
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