As you know, I advise people to limit their financial risk and many people – as part of this strategy have put into their bond not only the monthly repayment required of them, but over and above that, any extra money, annual bonus etc.

Tue 14, 10, 2008

As you know, I advise people to limit their financial risk and many people – as part of this strategy have put into their bond not only the monthly repayment required of them, but over and above that, any extra money, annual bonus etc.

In other words they use their bond as a savings as well as risk management tool.

Now your access to this extra money – your money - could be limited by ABSA’s latest move!

Apparently they are going to stop people from borrowing the capital they have repaid – you will only be able to borrow the extra money over and above the required monthly repayments and then only on application, which means financial statements, proof of income, etc. Unless your access bond is what they refer to as a 264 and not a 261.

(A Flexi Bond - Outstanding Balance is a 261. A Flexi Bond – Advance is a 264.)

If your bond is a 261 (phone and find out if you don’t know!) and you want to withdraw your extra money you will have to go through an entire application process. At the very least it will be a big hassle. At the worst – well, as you know I recommend that you plan for the worst - and you really need to draw on your emergency funds ... they can turn down your application.

If you have a 264 nothing will change and you will still have access to the extra funds you have “parked” in your bond. They assured me that it will not be necessary to go through an application process if you want to withdraw it. But I advise you to perhaps get it in writing – I do not have an ABSA bond myself – I have been finding out on behalf of my students – so I personally cannot say beyond what I was told on the phone.

As I said, this is my understanding based on two phone calls to the ABSA helpline. They say they are doing this because people who are financially strapped are withdrawing bond money to pay living expenses, or to fund property investments, with money that they do not have, and in doing so put not only themselves but also the bank and their clients at risk. Also, they mentioned that if you do fall behind on a payment, ABSA takes it out of that “bonus” portion – so maybe they want to keep your money as their insurance!

So ... For the people who received letters saying the date for this change was 15 October, I suggest you go into the branch before then and withdraw all the “bonus” money you may have been “parking” in your access bond as a way of reducing your total interest on the bond, as well as having a convenient place to keep extra money until you want to use it. Ask the bank to change your bond to a 264. Once that has been done, you can “redeposit it” in your flexi bond. This will give you the flexibility to have access to your funds and at the same time give you a tax free high interest rate on your investment. (But first make sure about their rules) For the people who have an ABSA bond but no letter yet, phone the helpline, find out what kind of bond you have, and when you need to do this. For people with bonds with other banks, keep an eye out for similar moves on their part. Always remember it is the financial risks - like high interest on outstanding bonds - that kill people financially. Off cause if you do not have a bond none (extract from article written by Dr Hannes Dreyer email 14 October 2008)