Motley Fool: The easiest $50,000 you're missing out on

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What would you do to get $50,000, tax free?

Work more? Save harder? Buy that lottery ticket? All of the above?



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Banks have no excuse: Treasurer

The “major bank levy does not give any bank an excuse to increase costs for their customers,” Treasurer Scott Morrison says as he introduces his bank levy bill to parliament.

There is no shortage of articles telling us about the straitened economic times we live in. And they’re right. Economic growth is good, without being great. Pay rises are hard to come by. And those million-dollar houses (and avocados) won’t buy themselves.

Frankly, I think most of the Negative Nelly stuff is enormously overdone. We’re not exactly in clover as a country, but we’re doing bloody well, if you actually look at the data. Which is beside my current point, but a point worth making regardless.

But back to our $50,000. Did I mention it was tax free?

How far would you go to save 5¢ a litre on petrol? Or $10 on a case of beer or bottle of wine? A cheaper iPad? Handbag? Leather jacket?

I thought so.

And yet, I’d bet London to a brick that a good proportion of people reading this right now are leaving many thousands of dollars on the table. Or, perhaps more maddeningly for anyone other than their shareholders, in the pockets of our big banks.

Banking on apathy

There’s something strange about our relationships with our banks. We’ll change supermarkets, even phone companies, but when it comes to our financial affairs, we’re more faithful than Red Dog.

Now, I have nothing against the banks – if you exclude the financial planning, wealth management and insurance scandals of recent years.

Oh, and the inescapable suspicion that there’s no real competition between banks in Australia. Or their bleating about the new bank levy. But other than that, as long as they’re operating legally and ethically, I don’t object to them making a dollar.

But what really drives me nuts is the absolute flood of money they make every year because borrowers don’t take the very easy step of simply asking for a better rate.

I did the numbers last week: if you have a $500,000 mortgage, and you can get a 0.5 per cent reduction in your interest rate, that’ll save you $50,000 over the life of a 30-year loan.

Tax free. For nothing.

Or put another way, if you keep your repayments at the current level and negotiate that rate cut, you’ll take three years off your mortgage term.

Now, those are arbitrary numbers. Maybe your loan is larger or smaller. Maybe your rate is already pretty good. Or maybe you haven’t called the bank to get a better rate in years.

Which I understand. Many of us don’t want to face the hassle, or have the uncomfortable “I want a better rate, please” phone call. But when there could be tens of thousands of dollars on the line, it beats waiting for the “I wake up with Today” phone call – and with much, much better odds.

Save a small fortune in three steps

And it’s a super-simple process, that you can do in three steps:

1. Grab your last statement or log on to your online banking portal to find out your current rate (you’d be surprised how few people actually know what their rate is).

2. Head to your bank’s website and a rate comparison site to see what else is available. Write it down so you have it on hand.

3. Call your bank and tell them that you’d like to stay with them, but that your rate is significantly above some of the rates that are being offered, and that you’ll need a better rate to stay. Quote specifics, including their own better rates and the rates of competitors. And don’t let them tell you that for some reason you can’t get that rate. Tell them – and mean it – that you’ll switch banks if necessary, but you’d prefer not to.

You’ll be surprised how often the bank will simply give you a better rate, just on the basis of a single phone call.

Foolish takeaway

It almost sounds too simple, right? And you’re probably wondering why you didn’t do it years ago. The answer is that it feels hard, and that the numbers seem very small. 0.25 per cent is almost nothing … until it’s applied to a large mortgage over a long period of time.

So don’t be put off. Make the call. Then reward yourself with a nice dinner that’ll be well more than paid for with the savings. And don’t forget to toast the bank when you do.

ScottTheFool@gmail.com

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Scott Phillips is the Motley Fool‘s director of research. You can follow Scott on Twitter @TMFScottP. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).



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