Want to find the best investment account for you? How much do you like risk?
There are many ways to make your money grow. Cash deposits, such as savings accounts, provide a steady income in the form of interest payments, while trading shares, derivatives and foreign exchange provides the potential for quick capital gains (as well as losses). Each type of investment account pays a different return on your dollar and has different levels of risk. If you’re looking to earn more, start by considering whether you’re comfortable taking a loss. Other factors, such as investment size and horizon, also play a part. You can find an analysis of each type of investment account below.
No-risk investment accounts
There is almost no risk in this type of investment. You will make some capital gains with no potential for loss. However, to make big profits, you’re going to have to take on risk.
Savings accounts
One of the most widely used types of investments, savings accounts are a no-risk cash investment.
A savings account:
- Has no minimum deposit requirements
- Is an ongoing investment
- Can earn you an income from interest payments based on the size of your cash deposit
- Can sometimes pay bonus interest during an introductory period or pay bonus interest when you meet deposit and withdrawal requirements
- Allows your money to remain available to withdraw when you want
- Can be accessed either online or at a bank branch
- Is fee-free
- Can be used for personal use
Notice saver accounts
A notice saver is a hybrid of a term deposit and a savings account.
A notice saver account:
- Can pay returns similar to a term deposit
- Requires that you give the financial institution notice, typically 30, 60 or 90 days, when you want to withdraw your funds
- Is fee-free
- Has a variable rate of interest, unlike a term deposit
- Is an ongoing investment; funds are withdrawn to a linked transaction or savings account
- Can have no minimum deposit requirements
Cash management accounts
A cash management account is like a savings account, but the key difference is that this type of investment account can be opened in the name of a company or trust.
A cash management account:
- Has minimum deposit requirements
- Works as an intermediary between investments
- Can be opened as a cash-hub for self-managed super funds (SMSFs) or investors
- Is used as an account for investment income to be paid into and for expenses to be paid out of
- Is an ongoing investment where funds are available at-call
- Can be accessed through your cheque book, a bank branch and online
- Is interest bearing and generates interest for the account holder
- Has no monthly fees, although some transactions such as branch withdrawals and cheque payments can attract transaction fees
Term deposits
A term deposit is a set and forget investment. You agree to deposit your money for a fixed term and get paid a fixed amount of interest over the life of the investment.
A term deposit:
- Has a minimum deposit requirement higher than a savings account but often lower than a cash management account
- Requires you to lock your money away for a term ranging from a couple of months to a couple of years
- Pays a fixed rate of interest over the life of the investment
- Is a fee-free investment, though break fees apply for withdrawing funds before the end of the term (maturity)
- Is available to both personal and institutional investors
- Is not an ongoing investment, but funds can be rolled over to another term deposit at maturity
Risky investment accounts
These investment accounts have the potential to provide big capital gains as well as big capital losses.
Share trading accounts
This type of investment account acts as an intermediary to the stock market and allows you to buy and sell equities and invest in other listed financial instruments on Australian and international stock exchanges.
A share trading account:
- Gives you access to a wide range of investments: shares, CFDs, ETOs, warrants and more
- Allows you to leverage your investments using margin trading
- May have fees charged when you open an account, and a commission is charged when you trade
- Has the potential for capital gains far above what you can get by investing your money in a term deposit, but there is also the potential to lose money if your investments perform poorly
- Can be opened by both personal and institutional investors
- Can have funds credited to and withdrawn from it electronically
Forex trading accounts
This investment account gives you the ability to speculate and bet on the future movement of international currency pairs.
A forex trading account:
- Requires specialist knowledge
- Can be opened by both personal and institutional investors
- You need to pay fees to the forex platform provider in the form of spread.
- Gives you access to other investments such a commodities and managed funds
- Can leverage investments, which allows you to trade with more capital than you actually have. This trading strategy magnifies your profits and losses, depending on the outcome.
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What about robo advisers?
Robo advisers are a new type of investment account that can tell you where to invest your money according to your risk profile. There are two types of robo adviser services available. Robo advisers such as Six Park require you to invest money in a passively managed investment portfolio. Alternatively, services such as Macquarie Bank Owners Advisory provide advice on your existing investment portfolio.
The best investment account for you depends on your risk appetite, how much you have to invest and your investment horizon. If you have questions about the different types investment accounts available, get in touch with us using the form below.
