In the current times of stock market volatility and governments bailing out major firms such as AIG cash is king again for short term investments. High interest savings rates can offer an attractive and low risk investment compared to shares in the current market. Find out how you could benefit.
Investing your money as cash in the form of a high interest savings account or cash deposit has always been one of the simplest forms of investments. While it is the easiest investment method to access and understand many investors have moved away from these investment types in recent years and moved towards the share market where larger returns are possible. However, with the current stock market conditions, cash has its place once again.
Things have changed. The global credit crunch closed the tap on funds from wholesale markets, thus many financiers have turned to retail deposits to obtain funds for lending. In addition, soaring oil prices and higher inflation, share market volatility, and the spate of official interest rate rises have led to higher returns on cash investments.
Cash accounts are again in favour among investors, particularly two types: high interest savings accounts and term deposits.
Saving accounts: Currently its possible to get savings account rates earning around 7 per cent. The significant rise in savings account rates for these types of accounts has really attracted a lot of depositors. These online savings accounts are quite flexible, since they allow you to draw money at anytime you need the funds.
Some high interest savings accounts attract as much as 7.4 per cent interest, tax free. Savings account rates may be lower at 7.2 per cent for other offers, and these may be subject to 15 per cent tax, but this is still an improvement over the marginal tax rate and generates significant savings for you. Of course, while a low tax rate is great, having an account with zero-tax rate is even better.
Term Deposits: Known as a cash deposit in the USA or a term deposit in Australia, this cash investment has become increasingly popular. The volatility in the share markets have led many conservative investors into term deposits, which have much lower risks and offer more predictable savings account rates. The flight towards safer term deposits is particularly visible among owners of superannuation funds.
Term deposits are perceived as an attractive path to increasing the value of one's investments during these bumpy times. If you are currently trying to save up to you afford a deposit on a house then you reach your goal faster if you make use of the best savings account rates on offer.
For instance, one of the biggest credit unions in Australia has a 5-month term deposit product that gives 8.1 per cent per annum on a $10,000 minimum deposit. Your earning is maximised since the interest is calculated and added to your account daily.
Other banks offer 180-day term deposit with interest rate at 8.15 per cent, or one year for 8.1 per cent. If you don't want to lock your money away for too long then shorter terms are available such as one month or ninety day terms. The added advantage is that there may be no minimum balance required to open these term deposits.
Australia's Reserve Bank may make one further cut in interest soon but it's likely the rates won't move too far from current levels in the short term. But aside from the prevailing turbulence in global financial markets, improving technology and increasing competition are also inducing fundamental changes in the market for high interest deposits. These factors are likely to make savings account rates remain very competitive into the foreseeable future.
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