Omar Baig, Head of Transactional Banking at Absa RBB, has some revealing insights that you may not have considered when it comes to the link between your transactional account and your home loan.
A ‘transactional’ account is one that you open with a bank for your everyday banking needs. Transactional accounts are often referred to as ‘liquid money’, which means you have immediate access to cash based on the balance of funds in your account.
Ideally your salary/income is deposited into a transactional account, from which you then distribute those funds to pay your bills. This is often actioned by the use of debit orders or electronic funds transfer (EFTs) through internet banking or the Absa banking app with the added value of the Absa digital fraud warranty that gives you the peace of mind to transact safely and securely at your convenience. One may also use their debit card that allows you to shop and make other needed purchases in person or online.
“In today’s society, a transactional account comes with the advantage of a debit card, which is linked to the account. Debit meaning that you can transact with the card up to the amount that is available in your account, and which can be used by swiping at vendor points to pay for purchases, shop online and/or withdraw cash from an ATM,” says Baig.
The relationship between your transactional and home loan accounts
“How a transactional account works relative to your home loan is that it provides a customer with the ability to register for, and engage with, the digital services that Absa offers, which in turn allows you to view your home loan account balance on your smart phone using the Absa App, or online.”
Baig says that customers using these services can also transfer additional funds from their transactional account into their home loan with ease, and at any convenient time, 24/7. ‘Our customers can choose to have their monthly home loan debit order processed through the transactional account, or remain with the flexibility to deposit directly. The same is applicable in reverse. If a customer has availed of our Absa FlexiReserve facility, transfers can easily take place between the home loan account and their transactional account.
As the owner of a transactional account, only you have the authority to direct and manage the funds and the impacts on those. Obviously if you wish to share that information with a spouse or partner, you accept that you remain responsible overall, but unless you advise a bank that someone else will or may transact, even on your behalf, such transactions may not be acknowledged by the bank. The bank strongly recommends that you do not disclose your banking details and security information to anyone else.
Opening a transactional account
Opening a transactional account is conditional. You must be 18 years old to open an independent transactional account (there are junior savings products that offer free banking for your younger customers), however the qualifying criteria is dependent on the account type. Baig says Absa’s recommended account is Gold which offers free digital banking and a number of free bundled transactions every month. In addition to this you get retrenchment cover, funeral cover and disability cover of R30,000 that gives you relief in difficult times. This account is most suitable for individuals earning at least R4,000 a month. Further up the scale is Premium, that gives you additional benefits including access to priority banking service for which Absa recommends an income of at least R25 000 a month.
“Our Private offering has a stipulated income criteria with a minimum gross income of R62500 per month,” says Baig. However we have taken into account Young Professionals, who must be younger than 35, in their final year of studies and have graduated or been employed with a degree in the medical, chartered accounting, actuarial sciences, law, architectural, engineering or aviation.
Assuming you have both an Absa transactional account and an Absa home loan, and you have been fortunate to come into some extra money, the debate opens as to where it will be of most benefit, or realise the best return. Baig says that obviously, individual circumstances apply. “If however, you would like to earn interest on your savings, you can invest in an Absa investment product. On the other hand, if you wish to deposit into your home loan as a prepayment, or extra, this will save you money on interest payments.
“Prepaying amounts into your home loan also gives you the advantage of being able to transfer them back into the transactional account when you have unexpected expenses. Also remember that most banks don’t pay interest for the money that is sitting in a transactional account, and of course there is the temptation to spend money on impulse purchases if it’s easy to access.”
The bank relationship and your rating
The longer you have a bank account with one bank, the better the bank understands you and your risk profile. Baig advises a six month period should suffice to demonstrate your financial behaviour and gives the bank enough time to assess your spending profile. “However it is important to ensure you develop a good credit score with the credit bureaus by honouring your debt obligations in a timely manner as this indicates how you manage your credit across various institutions.”
It is not uncommon to have a transactional account with a different bank to that of your home loan. “What must be considered however is that most banks, Absa included, ensure that customers who have a transactional relationship with them get better interest rates on their Home Loan,” concludes Baig.