So a few months ago I got about $70k. Straight away I used some of it to pay off my car loan. Now after a few months and some savings i have a bit over $50k left. I've just had it sitting in a savings account with a bit over 4% interest. Just wondering without having to spend much effort like going to a financial advisor or anything, is there something better to do with it? I do have student loans and am considering putting it on that before indexation because the rate for that has been bad lately.
Best Option for $50000 - Just Sitting in a Savings Account
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Damn now I gotta choose between the Nigerian Prince and actual Ozbargain royalty hmmm
JV is royalty everywhere
Preach
Seems like my account didn't let people send me messages so I never got it unfortunately.
Knowing JV, that's probably for the best.
Or give the money to me, you'll feel better its on safe hands.
OP should buy a Monke pic, its literally better than going all on red.
Wait for the December CPI figures to come out but annual hecs will be around 4% this year, so not as bad as last year.
Anything beyond a bank account becomes a risk/reward thing. You can earn more but the risk is higher. More importantly would be your long term plans, if you want to buy a house in the next few years then lower risk might make sense. If you already own a house, it would be better to setup an investment portfolio and start growing it.
If my goal was to buy a house, would paying off HECS be best because then I don't get the increase on the loan and its less of a factor when actually applying for the home loan.
I wouldn't think so because it's not an interest-accruing loan. It would be a separate declaration than other debts.
And if you use say $10k of your cash, you lose $50k in purchasing power assuming an 80% loan.Most banks treat HECS exactly the same as every other form of debt, with an interest rate of whatever inflation prediction figures they use internally.
Plenty of lenders are happy to fudge the numbers for HECS debt, like calculating 'interest' after anticipated mandatory repayments rather than the current debt or using the lower range of predicted inflation. But there's only so much you can do with that.
@Jolakot: And some lenders use the actual repayment in servicing ie the percentage of income that needs to be paid back, without worrying about the effect of interest/ inflation or whatever. Eg if you're earning $65k then you're in the 2.5% repayment band, so will have a required repayment of $135.42pm included in your tax deducted from your pay, regardless of how much your HECS debt actually is. That $135.42pm will be treated as a loan repayment.
It definitely plays a role. My max that I could borrow with my HECS debt was 1.2m, with it paid off I could borrow 1.6m.
@dmcneice: How much did you have to pay off to get the $400k extra? If it was pay off $100k and get $400k extra loan that is a pretty good ratio.
This is where a mortgage broker comes in handy, they basically have the same calculators as the banks so they can tell you what the impact would be on paying it off vs not.
Plus they're free, so if you're thinking a house in the future it's worth talking to one. I did that when buying a house, chatted to one 6 months before buying, got my finances in order and was able to boost my borrowing capacity quite a bit. That said, I had all sorts of rubbish, overseas accounts, shares across multiple accounts, unused lines of credit, too many bank accounts. It was beneficial to me to get that sorted.
Nope, that's not how the mortgage broking business works.
Mortgage brokers are required to bring in a certain number of successful loan applicants to a bank every month, in order to be able to qualify to lodge applications with them in the first place and then continue to submit applications with them on behalf of their clients in an on-going capacity.
Mortgage Brokers as such have no actual incentive to find you "the best possible deal", as they don't actually have the capacity to shop around and submit a loan application to anyone they want. They'll always just submit you to one of a few lenders at most.
The smart move is to take the "best loan" a mortgage broker claims they can get, then just walk in and speak to a lending manager at any bank branch - the actual lenders at each branch have the ability to match and then beat any loan offer a broker can come up with & then they'll toss in discount credit cards and discount packages for the loan on top of that too, just to win your business. Brokers have to seek approval through lending managers to get access to any of that stuff, lending managers at bank branches can just give it to you as they please simply to win your business.
@infinite: Mortgage brokers are no better than Flight Centre. You only use them if you're utterly clueless and can't use a PC yourself.
@infinite: I forgot to mention that part, there’s no actual obligation to use the mortgage broker. I got them to help me understand my borrowing capacity then went direct to a bank the mortgage broker didn’t deal with.
Just look up mortgage repayment calculator - pretty much a billion of them online.
They have the same calculators as all of the above, just plug the numbers in.
@dogzilla: They work for income and expenses, not debt from the ones I saw. Those calculators told me I could borrow a small fortune, the broker was a lot more detailed and down to earth.
If you know of one that handles debt, let me know, it’d be really useful.
They work for income and expenses, not debt from the ones I saw.
The brokers are literally just using the calculators on the lender's website. Anyone with internet access can do the same.
@infinite: Dunno what broker you dealt with, but mine had a single piece of software, punched the numbers in once and had a list of rates costs and borrowing capacity for every bank they worked with and for my state.
It’d take forever to go through each bank website individually.
You're right though, bank websites do take into account debt. Dunno why o couldn’t find that at the time I did my loan
Dunno what broker you dealt with, but mine had a single piece of software, punched the numbers in once and had a list of rates costs and borrowing capacity for every bank they worked with and for my state.
You'd have to be pretty gullible to believe something like that is anything short of just a generic loan calculator.
Each lender has a 600-1000+ page long lending criteria guideline, just for their residential loan products. They don't publish them publicly. Only branch lending managers for each lender have access to that information & that's one of the real advantage's they all have over brokers. No software in the world is going to be able to do what you are claiming.
A mortgage broker does the equivalent of pre-filling a Centrelink form for you with your basic information because your too lazy to do it yourself. They have no capacity to judge or confirm the success of that application. Branch lending managers in that same scenario are like having a Centrelink officer fill your Centrelink application form and then immediately run it to see exactly what the result would be and what would need to be changed or done to make it successful. One of the reasons why that difference is so important, is because if you were to have your credit score run by multiple lenders in a short period of time, it would destroy your credit rating and have a red flag raised against you for being someone who may be facing financial troubles. If that were to happen, no lender would give you a mortgage. Branch lending managers can run mock applications from start to end and know exactly what the result will be and what financial changes you may need to make for an application to become successful - brokers have no capacity at all to do that. Not with any type of software.
annual hecs will be around 4% this year,
Thank god… last year got me good but still aiming to pay this down before indexation :’)
I paid all of mine off just before the 2023 indexation. It's unclear in hindsight whether it was the right call. If HECS is indexed at approx 4% this year and the interest rate on my mortgage (which I dug into to pay off the HECS) is 6%, quite a lot of the benefit (beating that 7% indexation) of the lump sum HECS repayment will have already eroded only 12 months on. And if the mortgage rates are say 5.5% next year and the HECS indexation falls to 3% or less, then I think there's a good chance that I backed the wrong horse.
Sure, there's the intangible satisfaction of having got rid of that particular debt, but we're trying to be smarter than that around here ayy.
Yeah fair cop if have other debts
Compulsary repayments are pretax. Thought about paying mine but naaaahhhhh
@krisspy: Not true, they calculate the amount on pre-tax income but you pay it with post-tax income.
You are not worse off for paying voluntarily vs compulsory.
If you don't believe me then have a play around with taxcalc, put in your income with HECS ticked, then without, and you'll see that your post-tax income is exactly +/- your HECS repayment.
@Jolakot: Correct, compulsory repayments are calculated on pre-tax income and paid with post-tax income
Easiest would be to salary sacrifice to Super the max you are allowed to and just run down the cash to make up the difference in lost salary.
You get a nice tax break and it's pretty effortless.
You get a nice tax break
You get a better tax break paying off your debts…
Do you though with HECS? I have no idea these days.
Paying off debt is done after tax, so debt needs to be cleared first…
@jv: Hmm.Generally I'd agree, but for HECS, its a very low interest loan AFAIK, in which case, it maynot as simple as that I think, but I wont get into an argument with you jv.
its a very low interest loan AFAIK
On 1 June 2023 due to general inflation in the economy, the indexation factor took a leap from 3.9% to 7.1%, significantly adding to debt levels.
https://atotaxrates.info/individual-tax-rates-resident/hecs-….
pay off all your debts and buy a house
pay off all your debts and buy a house
OP has $50K though.
What will they do with the rest of the money?
offset
108 inch TV
I've just had it sitting in a savings account with a bit over 4% interest.
why just 4 % ? ING is 5.5 %
So is UBank, and without so many hoops.
UBank requires regular deposits of $200+ each month before you qualify for that month's bonus interest of 5%pa above the base 0.1%pa interest - https://www.ubank.com.au/banking/savings-account
Just move it out to another bank and move it back. Easy. Not like some banks where you need to increase the balance or have 5 purchases.
Exactly! $200 transfer once a month, transferring money in each month for the interest meets this easy.
Moomoo 6.8% , 6 months intro
Will the money in moomoo be. Overdo if they go under?
Interesting: I opened an account with them and have transfered rather small amounts from 6 banks.
All but Macquarie rang me to ask me if it was really my wish.
Macquarie locked my account and after speaking to them for an hour they released it. But only after I told the woman that the chick Westpac had now got a better job at UBS.
How else will you teach your kids the power of compounding interest? #IYKYK
First decision is what are your long term plans for the money. House, travel, savings, pay off debt etc
The greater the chance you want to use the money within the next 5 years the lower risk investment profile. Basically no point doing anything with the money other than a high interest savings account (look at AMP or Ubank for the ones with the fewest conditions) or a term deposit.
Paying of HECS can be worthwhile because HECS increases by the CPI but bank accounts pay less than CPI at this stage (especially after tax) although the difference is not as great as it was in the last few years. However if you want to buy a house, for example, then you may feel that is a better use of the money than saving a few percent on HECS.
If you dont think you will need the money in the next 5 years then you can look at investing in equities (shares) or, if you are into property, possibly an investment property (although $50k wont be enough on its own). You could start with an IP that you plan to move into in a few years, but you need to be crunching the numbers hard on that kind of thought.
If you dont think you will need the money in the next 15 years, then you can look at super. Super is actually a great thing to invest in young, because that will grow a lot by the time you are retired. However, no point having $2m when you retire but not being able to buy a house for another five years because you dont have access to the money.
So - safest, most flexible is a high interest savings account. Just as safe, slightly less flexible, a term deposit. Then pay off HECS, but that involves a trade off. If you dont have plans for the money, look at equities etc
If you don't make much effort you won't achieve a good result. Superannuation advice is becoming more accessible so you'll be able to get guidance on that pathway. If you want crowd-sourced ideas for free you'll have to disclose more details, much as an advisor would request. Straight up I'm wondering about the tax liability on your windfall and whether you're saving for a home deposit. Per @jv, your HECS/HELP isn't a good debt.
Yes home loan is my goal at the moment. The money came from a settlement and from what I've been told is not taxable.
I'd apply the $50K to mortgage deposit, keep it in a high/bonus interest savings account. Or per @clearview, consider FHSS.
"home loan is my goal at the moment."
Keep it in a high interest account, rotate banks to get introductory rates.
Speak to a broker to find out what you can borrow.
I would recommend putting $15k per financial year into ATO FHSS and claim tax in July, do same in next year, year after upto $50k( Maximum $15K per year/person). I have deposited about $90k with my partner in 14months and saved about $20k in tax, got $5k extra as well when we requested for release. No paper work at all, and it’s complete online through myGov/ATO and you’ve two after withdrawing the money or recontribute or pay 20% tax.
Believe you can retrospectively claim this for the past 4 years as well. So if you haven't been doing it you can leverage past credits.
I believe the concession amount rolls over for super, but the FHSS permitted withdrawal amount does not.
I am too financially illiterate to understand what your paragraph even means. It sounds suspiciously like a free money hack that is actually legitimate and legal.
But on a serious note, what do I need to research to get onto this? ATO FHSS? How does one get on this scheme?
Does one have to have a super high income to take advantage of this? How come I never hear people talking about this? We are in a similar situation to OP where we’re just sitting on a chunk of cash and too financially unimaginative to do anything productive with it.
Edit: FHSS: First home super saver scheme - we bought our first home a few years ago so I guess I’m outta luck.
ING,Virgin Money,U Bank,AMP,My StateBank all offer over 5% !
plus Au Unity
long term - ETF shares
If you need access to it - Ubank Saver @ 5.1% (have to grow it month by month)Ubank Saver balance doesn't need to grow month to month to get bonus interest FYI.
All you need to do is have a Spend account and deposit $200+ per month into any Spend or Save accounts (not including internal transfers) to get the bonus interest rate. Easy.
Take money out at any time without affecting your bonus rate.
Yeah, my house deposit was built on ETF shares. Better return than savings accounts, though obviously higher risk if there's a market-wide crash. But even with that risk, worst case scenario (aside from apocalyptic disaster) is that you just keep pumping money in and wait till it bounces back.
I’ve got payID if you need
Going against the grain here, but if you're a few years off buying and live in an expensive area, then I'd pay off HECS first.
Because HECS is a double-whammy, it counts against your borrowing capacity like any other debt + takes a massive chunk out of your serviceability.
Paying mine off early using a decent chunk of my deposit (effectively going from my goal of 80% LVR to 90% LVR) was the difference between borrowing $480k vs $600k.Like if you have a $50k deposit for a $500k house and the bank will happily lend you the remaining $450k, then definitely keep it in savings.
Same goes if you were expecting a significant pay-rise or something that would push your borrowing capacity + savings over the threshold regardless.But, if you wanted an $800k house and the bank will only lend you $600k, then you need to have saved an extra $30k for deposit + $120k principle to make up the difference.
Instead, if you paid $40k of HECS and the bank would then lend you $720k, then you'd only need to save an extra $30k for deposit and $40k for HECS.And while it seems like a no-brainer to get 5.5% from a high-interest savings account vs only paying a ~4.5% (crystal ball) HECS index, the kicker is that you pay income tax on interest.
So that 5.5% interest is really only 3.7%, and that gets worse the more you earn (3.5% over 120k and 3% over 180k).Basically if you had $50k in a 5.5% savings account, then you'd gain $1850 after tax. But if you had $50k in outstanding HECS, then you'd lose a flat $2250 at 4.5%, so you're $400 better off by paying off HECS.
Same math works for keeping money in an offset account vs investing; if your mortgage rate is 6% then you'd need minimum 8.9% (9.52% at 120k, 10.9% at 180k) to just break-even.
YMMV, definitely talk to a mortgage broker at your main bank before making any decisions, they're often happy to help you setup a plan without charge, even if you end up going for someone cheaper down the line.
Apple shares.
Tesla stock!
ME Bank HomeME savings account. Needs to grow by $1/mth apart from interest and you need to bounce money in and out of the attached SpendME account each month to meet the monthly hoops but it's 5. 55% and holds your full $50k.
Aurum.
Put your money in Aurum my sonYou could top up your super.
To get meaningful advice folks need FAR more info from you.
I think pop it in a HISA and do some more research - the worst thing you can do is to commit to something no understanding the full nature of the investment i.e any shares need to be in for 3-5yrs minimum unless you're happy to take a haircut
Best bang for buck you'd get would be to put the vast majority of it into your super as a non-concessional contribution - you sound young so before you do this make sure you're with a low cost provider, who offers you high growth index products e.g Hostplus
That $40k or so will end up being worth $500k+ the time you retire (assuming you're early 20's or so)
However, in 40 years time one might suspect the preservation age will be 70. And aged pension 75.
The is a known unknown.
Sure and the capital of the US might be Atlanta. But we can only work with what we know - and whats KNOWN is that the compounding effect of placing a decent sum in super at a young age will be massive come retirement age.
It's awfully attractive to keep all of it out now to spend BUT I highly recommend the OP go and play with a compound interest calculator and see what putting even a small sum into super for 35-40yrs would be worth.
https://moneysmart.gov.au/budgeting/compound-interest-calcul…If they can pass over that type of return, fair enough.
Those compound interest calculators look amazing until you consider the compounding impact of inflation, and realise your $1,000,000 return in 2065 is barely enough to buy a used Space Camry and a 12-pack of Virtual McNuggets.
@Ordinance: Yes and no.
Yes, inflation obviously means your big nest egg buys less at retirement - however long term CPI vs equities market performance still shows the latterahead by a long way.
Inflation sucks but this recent bout of it (which is pretty mild) is the first time in 15yrs it's even been over 5%pa in Oz. Thats nearly 30yrs of it being within the RBA's 2-3%, which is pretty superb considering how small a dot we are in global markets etc.
That's true and I'm not really disagreeing with putting money in to Super.
If however if we look at the increasing life expectancy and the increasing preservation age and the increasing aged pension age… there is a trend.
(That current 7 year gap between the preservation age and the aged pension is a real problem for governments. ie plenty of ppl 'blow' their super before going on aged pension).Although schemes like FHSS will most likely be around for the OP.
If you do decide to buy a house, using the FHSS can be a good way to minimise tax for a few years. Just be warned though, you pay tax on your income minus the amount you salary sacrifice but your HELP repayment is calculated on your taxable income plus the amount you salary sacrifice (i.e. likely your whole income). This means you can be on the hook to pay extra tax at the end of the year.
Short term - chuck it in a term deposit
Medium to long term - chuck it in an ETF
Long term - chuck it in super
S-tier - chuck it all on red at crown casino.
S-tier or Degen mode haha
It all kinda depends on your age and goals.
Currently I'd put it in my mortgage offset account - equivalent of 6.3% interest + the benefit of not paying 32.5% tax on the interest if it was earned.
If I was in my 20s, I'd pay off my mortgage and put it in a long term investment and max out my super each year till its gone.
Chuck it on your student loans. It'll save you about what you are getting in interest and you will no longer be tempted to do something with it.
Whatever you do, it would be a good idea to keep at least half of that liquid as an emergency fund.
Pay off any debts. Invest in EFTs
You should look up high interest trading accounts. They usually have a little higher interest rate than your standard savings account. You can store the money there and not have to use it to trade stock.
Or
Offset account of you have a home loan.
nothing wrong with a HISA until your ready to spend the money on whatever you like house etc. You don't need to try and do something sexy with the funds if you are unsure to try and squeeze that extra percent.
If you have a NAB savings account, you can instantly transfer it!
I don't promote gambling,
but
there's a $150-million Powerball next week.
You could look into moving it to Ubank, which gets you a 5.1% interest rate instead of 4%, without all the bullshit hoops banks like ING make you jump through.
https://www.ubank.com.au/banking/savings-accountOther than that, I'd just keep it in the HISA ("High" Interest Savings Account) like you're doing for now, until you decide what you want to do with it.
If you're going to invest, read some finance books like "The little book of common sense investing", and be sure to keep a few months worth of money in HISA, so you don't need to sell your assets if you're out of work for a while (hint: if the job market collapse and you can't find work, it's likely to happen at the same time as the stock market crashing).
Generally, the advice I've had regarding HECS from various accountants, etc has been to only pay off the minimum, because it's the cheapest loan you'll ever have, and you don't need to pay interest on it when you're out of work / low income. But, I had mine during low interest rates, and I've seen people shitting out advice about paying it off now, so I don't know about that one.
If you want more investment advice from internet randoms, sign up for reddit and join r/AusFinance, you never know who you're getting advice from. I could; for example, have pretended I know what I'm on about and given smart-sounding advice which may not actually be helpful, and I think a lot of reddit/ozbargain posts are exactly like this lol…
Go wallstreebet on reddit.
As a general rule, the timing of when you are going to need the money should play a factor in the risk you want to take (and expected risk is linked to expected return).
So if you want to buy a house in a few years time, cash might be a suitable option. If you want to use it to retire early in 20 years, investing in shares or property might be more suitable.
If you are considering buying property, talk to a mortgage broker about what to pay off and what not to pay off, keeping the student loan might mean you could buy a home sooner.
Ubank will give you 5%.=0
Ubank will give you 5% without too much drama and it's government guaranteed up to 250k. Part of NAB group.
I think ing pay a little more and maybe Macquarie, but it's a little more cumbersome to qualify and intro rate etc.
You might get more elsewhere if you want to lock it in to a term deposit or take some risk.
Serious question, I am sitting on 75k mostly in cash in Melbourne.
Why do people think I could buy, crazy talk
WHC, NHC, CSL, ALC
YMMV depending on your length of not needing the cash in the short term.
Australian unity has a HISA bank account freedom saver that pays 5.5%pa interest up to $50k. You can do more research there. The daily transfer limit is just $1,250. But you can call to increase/decrease the limit. I think it's up to $20,000 max limit/day.
Purchase cryptocurrency. One economist is predicting that 1 Bitcoin will be worth 1.5 million USD by 2030. If you buy now, your wealth would increase by a factor of 30 (minus Capital gains tax when you cash out). That's like earning 5000% interest per year before tax. A big improvement on the 5% the banks are offering.
Link: https://finance.yahoo.com/news/bitcoin-price-could-reach-1-0…
Love how everyone is negging this, go ahead and listen to the sheep and go and get 4% intrest on your money while real world inflation is like 7%.
You'll be loosing 3 % of your money each year by leaving it in the banklol you have the perfect name for the sort of comments you write, Bozo
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I sent you a message.