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I have a mortgage account and a separate (yet linked) savings account with a certain Australian bank.

This bank draws a minimum mortgage repayment from the savings account into the mortgage account every month. However, it also permits me to freely transfer extra money in and out of the mortgage account, the balance of which offsets the interest charged.

Given the low cash rate, my savings seem to be working a lot harder by sitting in the mortgage account to offset the interest, as opposed to sitting in the savings account earning interest which is otherwise taxable.

My question: Is it safe to keep all my savings in such a mortgage account?

My concern is that, for whatever reason, could the bank suddenly deny access to my savings from the mortgage account (i.e., the funds on top of the minimum repayment balance), if they changed their policies or suffered some problem, like going into administration?

Perhaps this is a naïve/paranoid question, but I haven't found anything in the bank's terms, our contracts or in the product descriptions that say this couldn't happen...

EDIT

After a few discussions and the comments I've received so far, I gather that:

  • Keeping all my savings in one place is risky regardless of where they are kept, so it's perhaps best to keep at least a few thousand in a separate account for emergencies (thanks @MrChrister)
  • The worst that could happen does appear that, in the case I am denied access to my savings kept directly in the mortgage account, is a 'short-term liquidity crisis', which I can mitigate with the above strategy (thanks @fennec).
  • Using an offset account linked to the mortgage account for the emergency funds (and not the bulk of savings which is otherwise kept directly against the mortgage) which reduces the mortgage interest may be worth it if the savings in interest reductions are greater than the account cost (thanks @Victor).
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    In the US, I would recommend not keeping all of your eggs in a single basket, but it would be safe. I can't speak for the safety in Australia, but I assume the separation of your accounts is still a good idea. (Also, welcome to the site!)
    – MrChrister
    Oct 18, 2012 at 1:25
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    Note that, you're going to need to pay off every dollar of your mortgage sooner or later one way or another (and even in bankruptcy you shouldn't expect to keep any assets). Your worst case scenario is merely a short-term liquidity crisis, and would not result in any direct losses to your finances. In the intermediate term you could refinance, or sell the house, or get a second mortgage if you need to access that equity again. Not that I think that worst-case scenario is likely to even be an issue under most contracts, but I haven't seen the specifics...
    – user296
    Oct 18, 2012 at 1:59

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If your savings account linked to the mortgage account is an 100% offset account then you don't need to put extra funds into the mortgage account apart from the minimum payments which is done automatically. Any funds you have in an 100% offset acount reduces the amount of interest you have to pay on the mortgage.

So if your mortgage is $100,000 and you have $10,000 in the offset account then you only pay interest on $90,000 within the mortgage.

Also the funds in the offset account are at call any time as it is simply a savings account. You can have all your pay go into it and have direct debits set up for all your bills. This way you will benefit from maximising the amounts in your offset account and reducing the amount of interest you pay on your mortgage.

If your current linked savings account is not an 100% offset account ask your bank if you can change it over to one that is. If they don't have offset accounts for that particular mortgage account ask them if they have a different mortgage account with offset accounts. If they can't help you then shop arround for a bank or lender that does. I am currently with ANZ and they have a product with 100% offset account and about 0.7% below the standard variable rate, and there are plenty more similar products out there.

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    Wow. Makes me want to move to Australia now:)
    – littleadv
    Oct 18, 2012 at 8:54
  • My savings account isn't an offset account, but I'm still able to freely transfer funds in/out of the mortgage account to offset the balance/interest anyway. The difference appears to be that offset accounts actually cost extra to establish with my bank, so there's no incentive for me to use one, unless, perhaps, it's somehow 'safer' (re. my original question). If, heaven forbid, the bank suffers some financial crisis and denies access to my funds, I think that the balance kept directly against the mortgage is safer than funds lying in a separate savings account, offset or not.
    – Bruce
    Oct 18, 2012 at 23:10
  • The charge for offset accounts varies between the banks from NIL to about $10 per month from what I have seen. I have one with ANZ which charges NIL and one with BankWest which charges $3.99 per month. There are additional benefits to an offset in that you can have a keycard (withdraw money at ATMs and use Eftpos) and cheque account attached which you cannot do directly with a loan account (you have to transfer money out first before you can use it - which becomes difficult on weekends and emergencies). Also they are much better if you have an investment loan.
    – Victor
    Oct 19, 2012 at 4:45

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