Question:
Is it better to put your savings into a savings account or income fund of sorts, or into an access bond to reduce your interest on the home loan? The access bond interest rate is 11%, compared with the 7%-8% you earn in any of the other accounts, so I assume it is the better option.
— A Fat Wallet Facebook community member
Answer:
You’re right about the access bond likely offering a better rate. However, shop around because there are some decent rates available. For example, the RSA retail savings bonds fixed for five years are currently offering 9.75%. This is below the 11% on your bond but that 11% will — hopefully — be coming down in the years ahead.
This brings me to the second important point. Putting extra cash into your bond effectively earns you the rate on your home loan, but there is no actual cash flow, whereas a savings account or the like will pay regular income. The question is, do you need that income?
The bond and many savings-type accounts offer instant access, which may also be important for you. The RSA retail savings bonds are great, but the lock-in is a minimum of two years and that’s at the lower rate of 8.5%. So the bond is great if you don’t need cash flow as it will help pay off the bond more quickly.
— Simon Brown, Just One Lap
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