For those who know how to use it properly, access to credit can be a wealth creator. This week’s Money Hack comes from Jenny, whose sister figured out a way to make her access bond work for her.

The hack

“Simon mentioned that interest on home loans is calculated daily. This reminded me of how my sister and her husband in New Zealand were able to pay off their bond super quickly.

Both of their salaries were paid directly into their bond account every month. This immediately impacted on the daily interest they were paying for the first part of the month. They would then withdraw money as and when they needed it. Everything left over at month end stayed in the bond, and so they enjoyed a double win! They saved a fortune in interest.

I have never heard of a similar product in South Africa, but I can’t see why we couldn’t do the same with an access bond. Obviously, this will only work if you are disciplined.”

Why we love it

With a little thought, a simple solution could save you thousands. Home loans that allow you to access any funds over your monthly repayment amount could be an excellent tool for a disciplined person.

If depositing your entire salary into your bond scares you, you can still use this type of bond to save substantial amounts on interest by allocating your short-term savings and emergency fund to this account. If, for example, your home loan interest rate is 10.25% per year and your savings account only offers 5% per year, you’re financially better off keeping your cash in your access bond.

Many One Lappers are strongly in favour of using access bonds as a savings vehicle.

Indeed! Same cost as a normal bond. U can’t draw directly from the access dacility but can transfer to the linked account for free.
I recently found out that the bank is entitled to revoke the access facility at any point. Unlikely to happen, but just need to keep that in mind.

— Stealthy Wealth (@stealthy_wealth) March 22, 2018

Yes, I did the same. I have seen as much as R500 differce in my interest from one month to the next. — Petrus Booyens (@petrusb83) March 22, 2018

Friend of mine does exactly that between his ABSA bond, -flexi and -current account. Some admin needed, but can save you some pennies

— Christoff Gouws (@CGouws27) March 22, 2018

Yip, I have my emergency fund in th bond for now. Interest expense is better than the measly money market interest if it sat there. As it builds up I take the excess out and invest offshore and sleep better not worrying about our politics every day — George (@George_Bohemia) March 22, 2018

Definitely working for me. Just by having my salary chill in my bond for a couple of days every month has brought the final payment date of the bond forward. Some admin but worth it…

— De Wet de Villiers (@dewet_villiers) March 22, 2018

The risks

It’s important to ensure that you choose the right product. Some bonds provide access to money you deposited over and above your monthly repayments. Others offer access to additional credit from the bank. Choose a bond product that allows you to access your own money, not more credit. The difference is crucial, as the one saves interest while the other changes your principal loan amount, costing you more in interest repayments and bond repayments in the long run. It’s also important to be aware that your bond provider has the right to revoke access to this service. One Lapper Eric Brown had his access revoked after a failed debit order.

Correct, I had an access bond revoked after one debit order didnt go through. It was no fault of mine and it was paid 5 days later. Anyway, my bond is settled, facility closed and I have my property title deeds. FNB Homeloans will never see my business again. — Eric Brown (@EricBrownJHB) March 22, 2018

I think it’s important to understand, that if you living out of your access bond and all your savings/emergency funds are not risk free. A financial crises, a missed debit order can shut you out very quickly.

— Eric Brown (@EricBrownJHB) March 22, 2018

Craig Gradidge from Gradidge-Mahura Investments advocates caution. He says banks revoked access to clients around the time of the financial crisis.

Banks did exactly that in 2008. A lot of people came up short at the time they needed those excess funds — Craig Gradidge (@gradidgec) March 22, 2018

Each week, we receive incredible money hacks from a growing audience. In this blog, we share our favourites and why we love them. If you are a financial Master of Efficiencies, share your money tips with us by sending an email to hacks@justonelap.com.