What To Do with $60k While Saving for a House Deposit?

sweepy on 10/01/2017 - 20:11

Hey Ozbargainers.

As the subject suggests, I've come into abit of cash. The plan is to put it towards a house deposit. I figure I need about $120k for a house deposit and I will probably reach that level of savings about mid next year.

The question is, what should I do with the cash in the mean time? The most obvious thing to do is to stick it into a savings account and at least earn a little interest on it while I keep saving towards a deposit.

However, I imagine there may be better ways of making the money work for me in the mean time. Not really sure about buying shares or investing in some sort of low fee fund? Wondering if anyone has any other ideas/suggestions and if anyone else is in a similar position?

Thanks!

Financial

Comments

        • xavster on 12/01/2017 - 21:45

          @goms: Hi OP, GOMS provides the correct and the BEST advice.

          You can also have a portion of the LMI refunded if you pay off the loan in 2 years (depending on the LMI policy) You pay off the loan by re-financing it with another lender. When you re-finance with another lender you should have already saved enough to not require borrowing more than 80%, and thus no longer need LMI.

        • virhlpool on 14/01/2017 - 09:13

          @Nobita:

          P.S. ING Savings maximiser is 3% right now if you deposit $1,000 every month. 3% of your $60,000 is $1,800 which is not too shabby :)

          Minus say 30% of income tax, so it brings it down to $1200.

        • virhlpool on 14/01/2017 - 09:14

          @xavster:

          Won't it attract any early loan closure charges since you are paying off a 20 yrs loan within 2 yrs?

        • xavster on 14/01/2017 - 22:02

          @virhlpool: there are standard loan exit fees, they are circa $300 for a standard variable loan, it sure beats paying LMI for 25 years though. Fixed rate loans are different and I do not recommend them in general, of course your own financial situation may differ. Speak to a mortgage broker, they're free :-) Also, you can negotiate for your broker to cover your exit fees and also rebate annual account fees. They can afford this because the more loans they write, the more commission they get.

          Also I really recommend people attend a course in basic finance. (don't go to fake real estate investing seminars, I'm talking about an actual personal finance course)

          edit: I am not a broker, just a prop investor and deal with brokers & real estate agents quite a bit.

  • hoey888 on 11/01/2017 - 11:50
    +2

    If you are considering 'cash in the bank' you might want to consider the flexibility/ease of access.

    Some have a minimum 30 day notice period for term deposits along with penalty fees/interest if you withdraw early.

    Some online savings accounts have a lower interest rate but allows you to access funds within a few days if required. This can come in handy if putting a deposit and/or offer for a house.

    So there a pros and cons; depends which you value more…

    • sweepy on 11/01/2017 - 12:30

      Cheers great points.

      • basl on 11/01/2017 - 16:37
        +2

        Hi OP,

        I'm in the same position as you : have saved 85K and trying to get to 130k to avoid LMI. IMO take the 2-3% from a savings account. I use ubank because its easy on call with no requirement to use paywave /week etc

        I think our patience will pay off, unless you have a situation where you have to move now - hold off as long as you can stand it!

        I'm in Perth and prices are still going down, but depends on where you are buying. I wouldn't bother with shares/ETF since you dont have that long to go to get to your goal, good luck!

        • sweepy on 11/01/2017 - 16:56

          Thanks and good luck to you too!

        • xavster on 14/01/2017 - 22:14

          this is the correct strategy in a depreciating market like Perth. Timing is everything here, picking the bottom is hard, but keep an eye out and use RP data to look at trends.

          A rising tide lifts all boats, the same goes for a falling tide. Once you're at the bottom and sense a upward momentum, you should cautiously start buying.

  • Steptoe on 11/01/2017 - 19:49

    How long do you forecast it will take to save the other $60k?

    http://www.infochoice.com.au/banking/savings-account/high-in…

  • DrDollar on 12/01/2017 - 07:22
    +1

    If $120k is a 20% deposit, you might want to consider actually saving less for your deposit and paying some LMI to get into the market quite a bit sooner and benefit from the capital growth which could definitely out-weigh the LMI you need to pay depending on where you buy.

    Each bank has their own rates and they can be flakey on giving you details. The LMI calculations are "bracketed" and depend on the LVR ratio and how much you are planning to borrow. Given it is bracketed, you can find a "sweet spot" on how much you should save toward your deposit to incur fairly negligible LMI if it means you're getting into the market a few months sooner.

    You might find you only need somewhere around 13%-14% for your deposit to pay fairly minimal LMI.

    This approach though is dependant on the housing market not tanking. Even if it were to, I think you'll find the LMI would still be fairly negligible if you have a 13%-14% deposit. It will be tacked on to your mortgage so you will pay interest on it, but interest rates are very low!

    Might be something to think about rather than investing short-term to save for your larger deposit.

  • PAOK11 on 12/01/2017 - 09:14
    +1

    Unsure of your circumstances but how the fook do you save $60k in one year ??

    • Skramit on 12/01/2017 - 09:49
      +1

      He said…

      I've come into abit of cash.

      Inheritance most likely?

    • Caped Baldy on 12/01/2017 - 09:55
      +3

      must have robbed that grad working for westpac

      • aussieprepper on 12/01/2017 - 10:18
        +1

        Either way he going to get robbed lol.

    • Tech and cars on 12/01/2017 - 12:04
      +5

      Most people graduate at the age of 21/22 if they do a 4 year degree.

      Saving $60k annual is roughly $85k yearly salary, which is possible for a few people working long hours/out rural(where they get accommodation paid for them)/mines(if they still exist).

      A lot of people are fortunate enough to have the ability to still live with the parents while being early in their career too, so that also means almost 85%+ of your salary can be saved.

      While a lot of people may feel like $60k is a lot to save, it really is, but it can be done if you are lucky enough to have the proper support around you. I know you'll still be perceived as being fed with a 'silver spoon' but I still think a lot of hard work is required to do it.

      • PAOK11 on 12/01/2017 - 22:30
        +2

        Yes but most graduates are not on $85k after leaving uni.

        It took me 5 years to save $70k

        • doodo477 on 13/01/2017 - 09:47
          +1

          @PAOK11 2 years to save $50K with 2 children and stay at home wife on a single income 85K wage.

        • taoz on 13/01/2017 - 23:21

          @doodo477:

          that very good. do you have a loan? id think not. if you do well done

        • doodo477 on 14/01/2017 - 11:05

          @taoz: That is without a loan. The plan, if it works out is to save more than 20% for a house probably (probably near 100K saving). At such time the wife should be back at work and the kids starting kinder-garden. Buy a house avoid paying the LMI, and have a weekly repayment less than the cost in rent currently.

          More worried about people recommending buying into the property market right now without more than 20% of the cost of the house. The focus should be getting the principle amount of the loan down as fast as possible reducing the total interest repayment.

          Although I'm told buy my spouses that who have 2 IP each that investment property is the only way to get rich. Both have interest only mortgages and collectively have about 2 million in debt.

        • May4th on 14/01/2017 - 12:07
          +1

          @doodo477: spouses? :o

        • doodo477 on 14/01/2017 - 12:58

          @xbai: Sorry that should of been siblings. Although come to think about it I wouldn't mind a extra hand lol.

        • PAOK11 on 19/01/2017 - 22:32

          Nah that's impossible. I make 50k + bonus and that's barely enough for me

      • May4th on 13/01/2017 - 14:03
        +4

        85k salary and saving 60k only works if you don't eat, sleep or breathe

        • JV159 on 14/01/2017 - 12:44
          +1

          Yes exactly, and when you go to work you'd better be driving something that doesn't run on combustible fuel and for every lunch break you can eat plain white bread with nothing on it, when you need new clothes you can wear old potato sacks and newspapers.. Do this every day for 5 years till you've saved a house deposit to not need to pay LMI, keep this lifestyle up for 15+ years and you'll have that nifty 1960's built 2-bedroom home 20 minutes out of the city paid off. Then the day you pay it off the housing market collapses and all that hard work and sacrifice for a house that will be worth nothing again.

  • syousef on 12/01/2017 - 09:58
    +1

    Ask strangers on the Internet for financial advice. What could go wrong?

    Someone is bound to suggest a good gambling strategy right?

    • sweepy on 12/01/2017 - 13:09
      +6

      I find that additional info helps rather than hurts. Now I can make an informed decision based on the advise I get from many different channels including this one.

      • syousef on 12/01/2017 - 21:54

        Look up Dunning Kruger.

        • sweepy on 17/01/2017 - 12:02

          What's your assessment of your own talent?

        • syousef on 17/01/2017 - 14:04

          @sweepy:

          Now look up "Tu quoque" logical fallacy

        • sweepy on 17/01/2017 - 16:59

          @syousef: why are you here?

        • syousef on 17/01/2017 - 17:55

          @sweepy:

          Now look up "The Big Question"

        • syousef on 17/01/2017 - 18:07

          @sweepy:

          I'm going to break out of this and explain to you exactly why "additional info" often does hurt not help. I would have thought this is obvious stuff but clearly it's not.

          When you're making an "informed decision" based on "many different channels" the first thing you should be doing is filtering out noise. And that takes effort. It's much easier to find a channel with less noise to begin with than to evaluate the merit of every person's contribution.

          As an example: Where do you go for medical advice? Do you ask every person you meet on the street? Do you ask your relatives (assuming they aren't medical professionals)? Well perhaps for a minor ailment you would. But for anything serious you're going to want a medical professional and the more serious it is the more specialised they are going to need to be. You wouldn't take your barber's advice over the GP or the GP's opinion over that of a team of top specialists. Even if you have a team you're going to want to find one in particular to handle your case.

          But let's assume for a second that you're the type of fruitloop that puts celebrity annecdote over medical advice and would rather die of a preventable disease than go to mainstream medicine. Let's look at something most people aren't going to argue over: Your mechanic.

          If your car needs a service you might have the know-how to do so of the work yourself. But if you don't you might go to a mate who has a reputation for being good with cars and try to get their help. In the end though if you need to do serious work you're going to want a real mechanic or a mate that was a mechanic at some point. You don't need or want the opinion of your barber, butcher, best friend, best friend's roommate, best friend's mother, dad, auntie, uncle, second cousin, best mate from highschool, boss, work colleagues and dog groomer to fix your car.

          So why the HELL would you want to take advice on where to put your money from a total bunch of strangers whose expertise you have no means of assessing? Even if they give you an idea - if YOU need advice, you're in no position to really assess whether that idea will work without A LOT of effort. And if you don't get the right advice, joke is on you when you end up losing your money. There is a LOT of TERRIBLE advice on the web and yes here on Ozbargain. You might get some expertise about some topics - like bargain hunting, using sim cards to get best value etc. but what on earth makes you think these people are financial planners? Some of these braniacs are suggesting bad disproven gambling techniques (redundant! they are all bad! the house is there to make money!) as financial advice. I have no idea if they're seriously that obtuse or if they're trolling and having fun with the thought they might influence someone to lose their life savings.

          Go find 3 planners that know their stuff that you're confident aren't just after an ongoing commission or a payout from the people you're investing with. Don't go have the financial equivalent of having your cancer treated by an alternative medicine crackpot.

        • sweepy on 18/01/2017 - 10:54

          @syousef: Lots of the advice from this thread is actually quite good. A lot of it inline with what my accountant and my financial planner has suggested (some of the other channels i mentioned.) Thanks for your concern about my ability to filter though.

        • syousef on 18/01/2017 - 12:57

          @sweepy:

          Even if you can filter, there are plenty who can't and will use this INSTEAD of an accountant or financial planner.. (bargain advice!)

  • JV159 on 12/01/2017 - 10:37
    +2

    Come to Ozbargain to tell all the tightarses how you've got $60k in your back pocket..

  • darkchoc on 12/01/2017 - 10:41
    +1

    When making any investment, you should consider the timeframe you would require the capital back.

    Can you afford to wait 2 or 3 years for your investment to increase in the instance your investment decreases in the short term due to short term market fluctuations? If you can, you may be able to take some risk in your investments. Could you risk the whole amount? I doubt it.

    Maybe it is more suitable to risk 10% or 20% of your total amount. So you could invest say $50k in cash, $10k in diversified investment such as an Australian ASX tracking ETF. That way, you get some exposure to markets and say if the asx drops by 20%, you are only exposed to a $2k loss, which you could wait to ride out.

    If you cannot imagine the value dropping $1 and that you need the money at a specific date, you might be better served in a cash investment such as term deposits or online accounts.

  • oodian on 12/01/2017 - 13:23
    +1

    Check out RateSetter - one year rate at over 5%, relatively low risk. (This not financial advice, read the PDS etc.)

  • JuryWheel on 12/01/2017 - 14:43

    On a related topic, we are selling our house hopefully next month and will then start to look at a replacement. Looking and finding and actually buying can take a fair whack of time so what do you do with the money from the house sale (once the bank has been paid course)? Well likely have about 350k and so don't want to just have it sitting doing NOTHING but have to be realistic in knowing that we MAY find a new place in a week or a year! High interest savings? Is there a max amount?

    • sweepy on 12/01/2017 - 15:11

      As pointed out above, Term Deposits mean you might not have access to your money for a set period of time, which might not be ideal if you need access to your cash if you find a place. Also, most of the online savers have a cap of 100k or 250k. The Citi bank online saver has a cap balance of up to 500k but you only get the 3% rate for the first 4 months.

      • JuryWheel on 12/01/2017 - 16:22

        So am i best to open up 2-3 high interest savings accounts or should i email them and see if someone like ING will do anything for me?

        • FutureTech on 12/01/2017 - 17:41

          Split the lot into chunks of 100k and 250k, put them into ING and ME Bank respectively

  • Priceless Class on 12/01/2017 - 15:11
    +1

    If you've already got $60k and aiming to save 120k in the next 12-18 months, then you are on a decent income. While you might not have a deposit for a 'residence', you might find that you fit the criteria to purchase it as an investment property now and rent it out for 12-18 months before moving in once you feel you can afford it.

    Keep in mind that Loan Interest/expenses and any repairs on the property will be tax deductible during this time period, so even if the rent doesn't cover the mortgage, it may be less of a paper loss than you expect.
    Bear in mind if you are eligible for any first home buyers grants this may not work for you.

  • tik tok on 12/01/2017 - 15:38

    When I was in your situation, I did nothing. Just searched for the highest interest paying savings account. NAB offered one - they have this savings account where if you do not make any withdrawal in a month, they paid 4 and odd percent interest. I was committed to saving and kept dumping my savings there. All other avenues expected a much longer commitment. With the NAB account I had - worst case I'd lose interest for that month and still have liquidity. Also, I really hope for you by next mid year the target doesn't get further away. Good luck

    • FutureTech on 12/01/2017 - 17:45

      Unfortunately the nab product you mentioned is now only giving 2.7% PA which is below ING's online saver rate.

      • tik tok on 13/01/2017 - 11:07

        What a bummer. Best to go with the highest interest rate. Just make sure you won't pay penalties when you really need your money.

  • MessyG on 12/01/2017 - 19:14

    We did term deposit with a similar amount and it worked well for us. If you work in banking, some companies will waive LMI with a 10% deposit.

  • rgr on 12/01/2017 - 21:31

    saving another 60k is easy within 1-1.5 years if you're really disciplined and can manage to save up more than 85% per month assuming a monthly income of 3.9-4.5k.

    be prepared to plan and budget you meals, and other stuff so you can figure out where you can shave down costs.

    • virhlpool on 15/01/2017 - 09:46

      If one is paying rent in Sydney even with the income you mentioned, it's difficult to save even 25% - leave aside 85%. You can't really reduce your petrol/ public transport, insurance (health/car), mobile/internet, groceries, rent, utility bills, etc costs much.

      • rgr on 15/01/2017 - 10:27

        sorry, i forgot to mention the assumption of not paying rent/living at home with the parents but yes, you're right HOWEVER i think if your rent was around $1400-1600 with average costs of $550 for other costs (excluding going out, car ownership and maybe even foxtel) then you should be able to save at least $900 minimum a month.

        • virhlpool on 15/01/2017 - 15:33

          Agreed. But $900 a month will take AGES to reach savings of $60k. That's what my worry is. How are single family income people who are on rent supposed to save amount to buy a property! Leave aside Sydney.. Anywhere in big cities?

  • Tripnfelt on 13/01/2017 - 00:41

    I'd follow the majority advice of cash in a savings account as you're planning to invest in property and you probably need a year to research and find the right property anyway butttttt take six grand and invest in shares to see if you would have done better than 3% - maybe something like two into blue chip or the AORD, two into gold and silver ASX companies and two into a managed fund of green energy and renewables etc.

  • yummycoot on 13/01/2017 - 02:44
    +1

    Spend your 60k on shares just like Kyle did on Money Monsters

  • TailsK on 13/01/2017 - 08:40

    If you're planning on buying your house soon, you should keep it readily available. You can earn about 3% interest from a few financial institutions, without the need for a term deposit. I recently opened up a Citibank Online Saver, which has a four month introductory offer of 3% (up to $500k).

    You may also want to look at the Bank of Melbourne Maxi Saver, which has an introductory offer of 3% for 3 months, but you also need a bank account with them, and I think there are deposit requirements.

    Keep in mind you'll have to pay tax on any money you earn from interest. If you find a property you like, and have money left over, you can use it in an offset. The offset will save you more than you earn in interest in the long run, with the added benefit of not having to pay tax on the savings you make.

  • RocketSwitch on 13/01/2017 - 09:50

    As others have pointed out, your best bet is with a high interest savings account from ING: Savings Maximiser.

  • tik tok on 13/01/2017 - 11:09

    I have to congratulate you for being able to save $60k in 18 months. That's a saving of $3300 a month. Bravo.
    You must not hang around this site often, I guess ?

    • psy on 13/01/2017 - 12:01
      +1

      Or not that often. Thus he doesnt spend $3000/month on gadgets he didn't know he needed.

    • sweepy on 16/01/2017 - 14:57

      Ingvar Kamprad, billionaire Founder of IKEA flew economy and drove and old Volvo.

  • psy on 13/01/2017 - 12:05
    +1

    Don't forget to factor in Stamp duty, conveyancing and other legal fees.

    I have quite a bit saved in cash (uBank), and a modest share portfolio. I've decided to save more. I'll reduce my mortgage too.
    There's a bit of uncertainty in the Vic market. Apartment prices are surely bound to fall. Unsure what will happen to house prices - but I figure saving more is worth the gamble over potential housing price increases.

    Good luck with whatever you choose. Saving a decent deposit & avoiding LMI is certainly a good idea!

  • syme321 on 13/01/2017 - 13:25

    Casino - and take Wesley Snipes advice :)
    https://www.youtube.com/watch?v=FTDeOPFr9e4

  • lonix on 13/01/2017 - 13:26

    Take it to the casino, bet it all on black!

    edit: lol, beat me to it

  • prinsenhof on 13/01/2017 - 17:55
    +1

    I would take $10,000 of it, wait for donald trump to completely shred a company like lockheed martin on twitter, watch the share price dump and then buy them up. In about 3 months he'll be at war with someone and they will skyrocket.

  • edy4eva on 14/01/2017 - 09:35

    Find a property (think major bush centres) for about $250-280k, buy it, lease it out and enjoy the returns until next year. You can still use the equity to buy a second property, and given the rent becomes an additional part of your income, you'll be able to afford a better property than you think might be getting in 1.5 years.

    Putting the money into the savings account is actually just trying to keep its value from depreciating, barely adds any significant value.

  • sabracad on 15/01/2017 - 00:26

    Have you looked at bank hybrids? Low capital growth potential, but substantially lower volatility than the rest of the market and most pay franked distributions quarterly at rates around 3% higher than term deposits.

  • sween64 on 15/01/2017 - 09:27
    +1

    About 3% is the best you can get at the moment for at call savings accounts.

    Check out this whirlpool thread and the Google spreadsheet linked at the top.

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