After today’s rate cut by the RBA, questions are beginning
to raise as to how best utilise your cash holdings in order to gain the best
benefit. With Australians rapidly becoming a nation of savers, this is a problem
crossing the minds of most people.
The consensus with regards to today’s rate cut is that the
major banks seem likely to pass on some – but not the entire cut for their
borrowing products however they will inevitably reduce the returns paid in
their savings products, father widening the gap between deposits and lending
products.
As an example, for a 3 month term deposit at NAB of less than
$20,000 you could expect to earn 5.20% whilst the standard variable rate at the
same bank is currently up t 7.31% a gap of 2.11%. A reduction today from the
RBA of 0.25% could see the term deposit rate fall to 4.95% and the standard
variable rate fall to 7.11% (assuming the bank passes on a 0.20% cut)
increasing the margin to 2.31%.
The question then becomes “how can I make the most of my
savings” and the answer is quite simple – you try and beat the bank at their
own game. As opposed to having your savings housed in a deposit, you have the
money sitting in an offset account. The difference is that instead of earning
money at a rate of 4.95% you are now saving money at a rate of 7.11%. As an
added bonus, because you are saving money now and not earning money, you have
to pay no tax.
A higher tax payer would need the equivalent of a 10% plus
interest rate from term deposit to be able to compete with the higher rate of
savings and savings on tax, and given we are in a cycle of rate cuts, that
seems a very long way off at the moment.
If you would like to discuss this or any other financial
planning matters, please contact HKS Financial Planning on (07) 3397 7315 or mail@hksfp.com.au .
Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.
HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.
