Bet, buy or bank: Where to invest your money
Given the recent volatility in the Australian share market, rumours of a housing bubble and the poor performance of the Australian dollar, do high-interest savings accounts (HISA) offer a safer, easier investment option?
It has been a difficult year for Australian investors. The Aussie dollar continues to fall, the housing bubble seems to be on the verge of bursting and the share market has experienced its worst quarter in four years. As the investment landscape looks increasingly rocky, high-interest savings accounts offer a simple, convenient and stable solution for Australians looking to build their financial future.
The earning potential of a high-interest savings account can rival that of shares, and it's easier and quicker to set up than entering the housing market. Check out this guide to find out which HISA is best for you.
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Share market underperformance
In September 2015, $55 billion was wiped off the Australian share market in one hectic day of trading. Losses mounted for Australian investors as the commodities sector plummeted and took the rest of the market with it.
While a market rebound occurred in the following days, it didn’t match the jumps experienced by other markets around the world. In fact, the Australian share market has just recorded its worst quarter in four years. Due to the decline in China’s growth, the value of the Australian share market has also headed south.
The value of the Australian dollar has also depreciated compared to other commonly traded global currencies. The strength of the Australian dollar is hugely influenced by the performance of the commodities market, which has also been affected by China’s slowing growth. Recently, it plunged below USD$0.70 – a far cry from a couple of years ago when AUD$1 was worth more than USD$1.Back to top
The problem with property
Considering the volatility of the market and its disappointing returns in recent years, you could be forgiven for looking elsewhere. Unfortunately, you probably won’t find a safe and secure solution in the housing market either.
Since the depths of the 2008 Global Financial Crisis (GFC), Australia’s average capital city house prices have climbed more than 40 per cent. The median house price has topped $1 million in Sydney alone. Spurred on by some of the lowest interest rates in memory, investors and first home buyers across the country have fuelled this growth.
But can we expect a bust to follow such a sustained boom period? That depends on who you ask. Many respected economists from Australia and around the world have predicted that our housing market is in a bubble set to burst at any time. You’ve seen plenty of news headlines about this.
Some experts have predicted troubled times ahead for the Australian housing market, thanks to a recent downturn in auction clearance rates and a crackdown on investor lending. For example, investment bank Goldman Sachs has estimated that properties in Sydney and Melbourne are overvalued to the tune of 20 per cent, and even the International Monetary Fund predicted a correction in housing prices as recently as October 2015.
If the bubble were to burst, house prices around the country could see double-digit drops. During the 2008 GFC, property prices in the US dropped a massive 30 per cent. Although it’s impossible to predict the future, the potential for house prices to plummet is something every investor should take into account.Back to top
A safe and simple solution
You don’t have to be an economist to work out that investing in shares or property is risky business in the current market. With this in mind, high-interest savings accounts are worth considering as a stable and secure investment option for Australians.
Banks, building societies and credit unions across Australia offer these types of accounts, and some of them include bonus interest rates as high as 3.50% p.a. Unlike the fluctuations and potentially significant downturns associated with shares and property, high-interest savings accounts offer a stable and reliable return on your investment.
As well as allowing you to steadily build a savings balance for a secure financial future, high-interest savings accounts also come with a government Guarantee. When you deposit an amount of up to $250,000 with an authorised deposit-taking institution, those funds are guaranteed by the Australian Government. Investors have peace of mind knowing that their funds will be safe if anything ever happens to their bank, credit union or building society.
A high-interest savings account is quick and easy to set up online, and there are also plenty of benefits to opening more than one account. Multiple high-interest savings accounts allow you to save for different financial goals and have funds available for unexpected expenses,Back to top
Tips for choosing a high-interest savings account
- Compare interest rates. You’ll want an account that offers you the best possible return on your investment, so a high interest rate is a must. However, make sure you’re aware of the difference between the base rate and any bonus rate on your account. The bonus rate is usually only offered for an introductory period, which means your account will revert to the standard rate once that period ends.
- Look out for special conditions. Many accounts require you to satisfy certain conditions in order to achieve the best possible interest rate, such as a minimum deposit each month. Make sure you’re aware of these special requirements before you sign up for an account.
- Avoid fees. Hidden fees and penalties can make a huge difference to your bank balance, so make sure you’re aware of all the charges that apply to your account.
- See if you're penalised for withdrawals. Are you able to withdraw funds from your savings account whenever you wish? Will you have to pay an extra fee for doing so or will you not be eligible for bonus interest during the month you make a withdrawal?
- Forget loyalty. You may be tempted to just sign up for the high-interest account your current bank is offering, but this is no time to be loyal. Shop around to see what sort of interest rates and account features are available from other banks.
- Don’t be afraid to go online-only. In many cases, you may be able to find a better interest rate from an online-only bank than from a bricks-and-mortar bank. This can be a daunting prospect for some, but if the financial institution you choose is included on the Australian Government’s list of authorised deposit-taking institutions, you can rest assured your money will be safe.
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