If you’re frustrated with the current rates for term deposits – you are not alone. Many disgruntled investors have seen their income eroded as term deposit rates have consistently fallen from above 8% in 2008.
The Reserve Bank of Australia (RBA) current cash rate is 2.00% – which brings the cash rate down to around the rate of inflation. Some economists are still predicting further rate cuts in the months ahead.
Given these tough fixed interest conditions – your term deposit yield is merely keeping you in line with inflation – as long as you don’t spend it and pay any tax on it, or see rates cut even further.
Two Ways That Banks Borrow Money
Banks typically raise money in Australia via Term Deposit and via Listed Fixed Interest (also known collectively as ‘hybrids’), consider the following:
- WBC term deposit rates are currently as low as 2.00% per annum – however, Westpac has recently raised $1.3B via its ‘Capital Notes’ offer (WBCPF), which pays a running yield of 6.4% per annum.
- CBA term deposit rates are currently as low as 1.90% per annum – and likewise has just raised $900M via its ‘PERLS VIII’ offer, which pays a yield of 7.5% per annum.
Why The Vast Disparity?
It all comes down to risk. At one end of the spectrum, term deposits offer the highest level of safety – and thus pay an almost certain rate return (albeit very low). At the other end, bank shares offer the lowest level of security – and have little certainty around their rate of return.
What Is The Right Solution For You?
If you’re looking to discuss what might be the most suitable investment for you – contact us at Yield Financial Planning. Your success is more than just numbers on a page to us; we listen and get time to know you to ensure we find out what’s most important when regarding your finances. Furthermore, we can put you in contact with our stock broker and partner – Ben Brockhurst.
Yield Financial Planning Is Here To Help
At Yield, we want you to be able to focus your energy on the pursuits you enjoy and people that you love. We keep this in the forefront of our minds when discussing your investments and finances. If you are interested in discussing a financial plan, please contact us.
Author: Ben Brockhurst – Partner Stock Broker, Hartley Private Wealth