THE FINANCIAL WELLNESS COACH: Access bonds can boost emergency savings, but mental discipline is vital
For this strategy to work, you need to mentally demarcate that money even though the bank does not.
The article discusses the potential benefits and drawbacks of using an access bond as a home for part of an emergency fund. From a purely financial perspective, an access bond can provide an excellent return, be virtually risk-free, and is tax-free. By putting money into the bond, you avoid paying interest on a portion of your home loan, which can save you around 10% on the money invested.
However, the article highlights the importance of mental discipline when using this strategy. Having emergency funds readily available can make it tempting to spend them on non-emergencies, such as vacations, car upgrades, or home renovations. The money, while still accessible, has been mentally categorized as "available in the home loan" rather than "emergency fund," which can lead to impulse spending.
To successfully implement this strategy, the article advises readers to have the discipline to mentally separate the emergency fund from the rest of their finances. While the bond offers a high return and low risk, the strategy only works if you avoid using the money for non-emergencies. If you struggle with impulse spending, it may be better to keep your emergency fund in a separate, less accessible account.
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