Search This Blog

Thursday, September 8, 2011

Term deposits on the menu?

Since the Global Financial Crisis, there has been a flood of money into term deposits, with many people, especially those in or close to retirement, concerned about the increased level of volatility in markets.

“Investment Platforms” are ways to invest your money inside Superannuation or outside of superannuation – they give cost effective access to an extensive range of investments. An investment platform is an administration service that enables more efficient management of your investment portfolio.

These days platforms are one of the most common ways to invest your money, giving you access to a range of investments including those normally only available on a wholesale basis, consolidated reporting, and a convenient, holistic view of your investments’ performance.

But did you know there is now a new safe way to park your cash on your investment platform – giving you quick and convenient access to your money when you want to reinvest? A term deposit on platform!

While for most, cash certainly isn’t the answer to meeting long-term financial goals, given recent market volatility it’s understandable many retirees and people close to retirement are keen to invest a greater portion of their money into cash.

For those people term deposits can make a lot of sense and give a degree of comfort. They are widely available, offer competitive returns and are easy to understand. You simply put your money in the bank and are paid interest at the end of the term.

However rather than rushing off to your nearest bank, it may be worthwhile talking to your adviser about the possibility of a term deposit on your investment platform.

Putting your cash on a platform alongside your other investments will give you good overall picture of your financial circumstances, and once you regain confidence in the market will allow you to switch to other asset classes quickly and easily.

The other advantage is that they offer consolidated tax reporting, saving you a lot of time and effort when it comes to tax time.

The problem with traditional term deposits is that your money is locked in for a predetermined period, making it difficult to adapt to changing conditions.

Often when markets recover they do so quickly and without warning. So if you’re locked into a fixed term, you’re likely to miss out on any gains when markets bounce back.

Term deposits on platforms are usually more flexible, giving you the opportunity to switch quickly and conveniently, sometimes even overnight.

Although traditional term deposits and term deposits on platform offer comparable rates, investors should beware of banks offering honeymoon rates.

Often banks will entice customers with an attractive interest rate, only to drop that rate after a short period. Then, when it comes time to rollover your cash into another term deposit, you find your return is no longer competitive – you may also have missed opportunities elsewhere.

Overall the most important thing to remember is to take an approach that suits your needs as an individual – this will include, usually, short, medium and long term investing.

While investing in a term deposit can be a worthwhile approach for retirees and pre-retirees who want to reduce anxiety and safeguard a portion of their portfolio in the short-term, focusing on cash investments over the long-term could mean you won’t end up with enough money to achieve your financial goals.

For advice on using cash options, including how to utilise term deposit solutions on a platform, or to review your portfolio in light of the changing investment climate contact Hugh Kilpatrick* of RI Advice today, on 03 9471 0080.

*Hugh Kilpatrick is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This article does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives.