For those who are nearing retirement though, or those who are saving for a big purchase, large lump sums of cash need to be invested somewhere. Here are a few cash-investment options:
A home loan offset account
If you have a home loan, a mortgage offset account can be a great place to store any spare cash. Essentially any money sitting in a 100% mortgage offset account reduces the amount of home loan debt that interest is charged on. It doesn’t reduce your monthly home loan repayment, but more of that repayment goes towards paying down the debt rather than paying interest. So effectively your spare cash is “earning” the mortgage interest rate.
Given home loan interest rates tend to be higher than the savings rate you can easily earn elsewhere, it can be not a bad rate of return, comparatively speaking.
An online saver account
If you don’t have a home loan but still need access to your spare cash regularly or semi-regularly, an online saver might be worth checking out. Typically with an online saver account there are no restrictions on deposits or withdrawals, and no account fees. There are currently a small handful of products paying more than three percent. You can compare online saver accounts here.
An Incentive Saver account
Incentive Saver accounts enable you to earn a base amount of interest, plus a bonus extra interest amount if you deposit a certain amount of money each month and don’t make any withdrawals. So if you can save surplus cash regularly each month, this could be a good option.
Be aware of some possible traps relating to bonus saver accounts, the largest being that many bonus rates are contingent upon depositing a certain amount of money each month and making no withdrawals. If you can’t satisfy these requirements, a difference type of account may suit you better. You can compare incentive saver accounts here.
Low interest rates have been the bane of self-funded retiree existence for a few years now. On the plus side though, a term deposit will at least provide the guaranteed rate of return for the investment timeframe. This is unlike an online save or bonus saver account where the interest rate is variable and likely to change if the Reserve Bank makes an alteration to the official cash rate.
There are plenty of investment terms to choose from when it comes to term deposits; you can compare term deposit rates here.
A final word: credit cards. If you have a credit card debt that you pay interest on then check what interest rate you’re paying. It’s likely to be a lot higher than the above suggestions (credit card interest rates can be more than 20%) and therefore a more cost-effective place to save.
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