Bank Savers Are Laughing
Sun Herald
Sunday March 2, 2008
For those with spare cash, the rewards are high, the risk is zilch.
IN ALL the hoo-ha about rising interest rates and the pain they cause borrowers, one important point has been lost: savers are laughing all the way to the bank. For anyone lucky enough to have money lying around, it is now possible to earn a whopping 7.5 per cent - without taking a skerrick of risk. As the infochoice tables on page 8 show, both the BankWest TeleNet Saver and the Members Equity Bank Online Savings Account are paying 7.5 per cent. But bear in mind the BankWest rate only applies for 12 months, after which it drops to a comparatively poor 7 per cent. You can also get 7.25 per cent from St George and 7.15 per cent from Rabobank.But, for the first time in a while, you can do significantly better if you lock your money away in term deposits - and you don't have to tie it up for the long term, either. In a sure sign rates should start heading down next year, interest on the best five-year term deposit is nearly a full percentage point lower than the comparable one-year product.For the year, Macquarie Private Wealth has the top deal: 8.31 per cent. Next come RaboPlus with 8.05 per cent, ING Direct (8 per cent) and Commonwealth Bank (7.6 per cent).Cash management accounts and trusts are pitiful by comparison with both term deposits and online savings accounts; the best they can do is 6.5 per cent and 6.54 per cent respectively. But don't forget it's possible if you still have a mortgage to not only get a higher effective rate but to do so tax-free. Any savings you park in an offset account attached to your home loan are netted off your loan balance, so you pay no interest on that amount. This means the money effectively earns the equivalent of your mortgage interest rate, which could be a percentage point or more above the best savings rates (the average standard variable rate is now pushing 9 per cent, although you should always ask for a discount on this headline figure). There's no tax because you are not actually earning the money, only effectively earning it - by saving it. Putting money in an offset account is a great way to turn rising mortgage interest rates to your advantage. And it looks as though, even if the Reserve Bank doesn't deliver an official increase this month, banks will bestow an unofficial one. Meanwhile, income seekers willing to take investment risk with their capital - as opposed to the risk-free approaches outlined above - might also consider the stockmarket. Since the beginning of the year, formerly high-yielding sectors such as banks, the broader financial services sector and utilities have taken a huge share price hit. Which means they are trading on even higher yields than usual.Banks are down an eye-watering 20 per cent so now yield a very impressive 5.92 per cent. Financials have fallen even more - 24 per cent - therefore yielding 6.35 per cent. And the utilities' drop of 15 per cent puts them on a higher yield still, 8.21 per cent. The big advantage of dividend income is that it is usually enhanced by franking credits, credits for tax the company pays on its earnings. Two crucial warnings though: the sharemarket is likely to stay volatile for a good while yet and ABC Learning is unlikely to be the last company to come unstuck due to too much debt. If you would like to appear in Investor Overhaul and receive free financial advice, send an email to investor@fairfax.com.au. You would need to be willing to have your photo and financial details published.
© 2008 Sun Herald
