NICK BRUINING: Where savvy savers can find the best returns on their money as interest rates rise
Many borrowers are wringing their hands at the interest rates increase, but risk-averse investors will be celebrating a hike in deposit rates. Here’s why sticking with the big four could cost them big time.
While many borrowers will be wringing their hands at the latest interest rates increase, risk-averse investors will be celebrating an increase in deposit rates.
The Reserve Bank’s decision to add 0.25 percent to the overnight cash rate has flowed through to bank deposit rates, with most institutions upping the rates on offer to consumers.
Bank accounts including term deposits are popular with seniors who don’t trust or understand the share market.
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By continuing you agree to our Terms and Privacy Policy.But once again, seniors sticking with the big four will be missing out on hundreds of dollars in extra income.
Late last week, a $100,000, six-month term deposit with ANZ, for example, was paying 3 per cent a year, while the same amount with Macquarie was earning 4.6 per cent a year. At the end of the six months, ANZ would pay you $1500, whereas Macquarie would pay you $2300. A significant $800 difference.
As with all Australian registered banks, credit unions and building societies, deposits are covered by the Financial Claims Scheme. This includes banks that operate predominantly online. The FCS guarantees the first $250,000 per account holder per institution. But be aware that subsidiaries of parent banks come under the same guarantee.
A deposit in Bankwest, for example, is covered under the Commonwealth Bank’s guarantee so the FCS limit would be $250,000 across the total accounts in both banks, not each bank.
At-call online savings accounts are where some of the best deals are now on offer.
While many have stringent conditions attached, including regular deposits and transactions, others can be operated almost like a conventional transaction account.
Some also offer an “introductory rate” which can be enticing, but it is important to look at the rate paid if the conditions aren’t met or once the honeymoon period is over, typically four months.
One big four bank offers an introductory rate of up to 4.5 per cent, but reverts back to just 0.1 per cent if the monthly conditions aren’t met.
Macquarie again leads the pack, offering a four-month, 4.85 per cent introductory rate, reverting back to 4.5 per cent with all the money at call. This rate applies on balances up to $2 million.
Risk-averse investors should be very careful investing in non-bank accounts, sometimes offering rates slightly or much higher than those offered by recognised banks and credit unions.
Broadly, these are known as private credit arrangements, where money invested by individuals is on-lent to borrowers who are often snubbed by traditional bank lenders because of risk concerns.
Typically advertising heavily on social media and afternoon TV, the money invested in these organisations offers no guarantee that your invested capital will be returned.
Indeed, late last week US share markets stumbled when Blue Owl, a large private credit company operating in the US, froze redemptions for investors wanting their money back.
Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association
