Forums / Getting Technical / Finance / Fund for child in offset or not?

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  • Profile photo of bella84bella84
    Participant
    @bella84
    Join Date: 2011
    Post Count: 13

    Hi all,

    a bit off topic but would be interested in others experiences on this.

    My son is about to turn 1 so my parents & in-laws would like to setup a bank account to deposit into each year. Lovely idea & very thoughtful, but my first thought was that I want that money to work hard, so shouldn't it be put against our PPOR mortgage to reduce the interest? 

    However then it's not earning interest on its own (nor could it be in his name). I think I need to let his money grow on it's own outright, don't i?! Or am I missing something here?

    thanks for any insights. 

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    You could try and do something similar to what I did with a friend recently, basically I let him "invest" into my offset account.

    So he puts his money into my offset account, and I offered him an interest rate slightly less than my interest rate for my home loan (which was a fair bit higher than the interest rate offered for a savings account).

    So he gets a higher interest rate, I pay less interest, and it really is win win.

    May get complicated with other parties involved but if it is all tracked and everyone is happy with the arrangement and you agree on it PRIOR to any money changing hands, then no reason why it could not work out well for everyone.

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    If you have your friend cash on your offset account but pay him some interests just below your mortgage interest, the gain is quite minimal for you, isn't it?

    You will just gain (rate of loan – rate your make to your friend) * amount of cash he has on your offset.

    It looks more interesting for him than for you, but you still have a little bit of gain though.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Bella,

      Sounds like a great idea to me.  Perhaps run a makeshift "passbook" which you update every 3 months with "Interest" as well as recording each addition of cash from them. Use separate passbooks – one for your Mum and Dad with their contributions, and another for your in-laws showing theirs.  Make it an "occasion" when visiting to have calculated the latest "interest" and update their passbook while there.

      That way, each couple knows how their grandson's fund is growing, with a really nice interest rate added quarterly.  Doing it this way, they are also helping to secure their grandson's future too.  A classic win/win/win situation.

    Benny

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    I did that with my kids money. Put it in my mortgage and paid them the same interest.

    I kept a book and they could see it growing. When they got older and wanted it I just gave it to them.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    And as soon as he is old enough (once he can walk it's fair game I think), expose him often to the concept of property investing.  Make it clear that to invest is a normal part of your family's life.  Take him round to help tinker in the gardens, let him see you installing a new curtain, whatever it takes.  smiley

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of bella84bella84
    Participant
    @bella84
    Join Date: 2011
    Post Count: 13

    Thanks for the comments above. Benny I like that approach, it gives a sense of tangibility to it for the 'giftees'.

    catalyst, interesting to note you've done this and it worked well.

    i think we'll just need to do a spreadsheet to track deposits and interest rate changes over time.

    Profile photo of bella84bella84
    Participant
    @bella84
    Join Date: 2011
    Post Count: 13

    Thanks Jac, just saw your comment! That's certainly the plan to involve him as much as possible : ) 

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    I did a similar thing with my grandmother, she wanted to invest some money to pay for her funeral (morbid I know, but it was her money), and I offered to use my home loan.

    Being family you obviously just offer them the same interest rate as the home loan, so it is no benefit or harm to you, but a great benefit to them (hopefully Karma is real).

    I made a spreadsheet for it and would be happy to flick it through if you did need something, it is not very complicated, all you do is just input the interest rate with a date when it becomes effective, and add a deposit whenever they do and it all calculates automatically.

    You could put it online in Google Documents or similar and the "giftees" could check it whenever they wanted to.

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