Interested in buying your own home? With some careful planning and discipline, you can build a house deposit in as little as 12 months - but you have to be willing to stick to a plan.
Saving for a house deposit isn’t easy, especially as the cost of living continues to rise.
For those who want to transition from renting to home ownership, it takes time, effort and discipline to cobble together a deposit. However, that doesn’t mean the dream is out of reach.
One of the simplest ways to boost your savings is to make your money work for you by placing it in a fee-free, high interest savings account.
Greg McAweeney, RaboDirect's general manager, says would-be homeowners miss out on returns of over 6% when they fail to take advantage of high interest saving accounts.
"Savers should seek out the best rates of returns for their cash savings, rather than leaving money in transaction accounts, where some banks paying interest rates as low as 0.01%," he says.
“A home deposit can be built up more quickly if you deposit your money into a high-yielding savings account to maximise the effects of compound interest.”
The key to success is to develop a clear savings strategy, so you know exactly how much of your hard-earned cash you need to set aside each pay period in order to reach your goal.
According to McAweeney, if an account holder has $50 to deposit from their pay each week, starting from a balance of $10,000, then by the end of one year they would have saved $13,296 at an interest rate of 6%. A total $696 would have been earned in interest.
However, if they saved $200, deposited once a month, then their savings would have reached $13,084 by the year's end, with $684 earned in interest.
"That's an extra $212 saved with weekly deposits over one year and an extra $12 earned in interest, at virtually no pain to you," McAweeney says.
"Over time, those extra savings and extra interest build up and help you to save a bigger home deposit and minimise mortgage debt."
For those with time on their side, investing in a term deposit that offers higher interest rates for a guaranteed period of time could be an effective alternative to a high interest savings account.
With a term deposit, you can boost your returns by locking in an interest rate for a period of six months to five years.
Tips for success:
- Opt for savings accounts in which interest is earned daily, as this means you can take advantage of compounding interest, which is effectively interest being earned on interest.
- Set up a direct debit that sweeps funds from your regular account to your high interest savings account every week, fortnight or month.
- Have a clear strategy to ensure you commit to regular savings – most experts recommend that you try to save 10% of your salary at a minimum.