In a low interest environment, homeowners are able to take advantage of reduced mortgage rates but what about the people with money to save? How can they make the most of their investment?
“If you have a mortgage and have got some money to spare, you first consideration should be to pay off as much as your mortgage as you can,” Canstar general manager Jose George said.
“But, if you’re a renter or a mortgage free retiree, you’re obviously looking for an investment that suits your appetite for risk as well as your longer-term savings goals. Term Deposits can offer a pre-agreed return on your investment and are also a great way to stop you spending your savings.”
Despite a relatively flat interest environment in the five years between September 2012 and September 2017, the latest RBNZ figures show that household deposits have increased by over $55 billion dollars.
“Although interest rates have been relatively flat, there are opportunities out there. Special rates are often advertised and if you are already an investor, your provider may be prepared to offer you a better rate in order to keep your custom.
“Also, be prepared to look at smaller providers as they often offer more favourable rates then the ‘everyday’ banks,” George said.
What you should consider when looking for a term deposit
It’s a given that we want the best possible rate of return on our savings and term deposit accounts tend to offer higher interest rates than every day and on-call accounts. Even so, by following a few simple steps before you invest, you can make your money work even harder.
Online comparison site such as canstar.co.nz enable you to compare interest rates and types of term deposit accounts from a variety of providers – big and small – on a single screen. A simple exercise that takes minutes but can result in a healthy increase in your returns.
Negotiate, negotiate, negotiate
A lot of people do not realise that the ‘advertised rate’ is not necessarily the best rate available. If you already have investments or accounts with the provider, or you are looking to invest a large sum of money, a higher rate of return can often be negotiated.
Rates are usually advertised ‘per annum’, not the term of your deposit
If your term deposit is only, say, six months, adjust your calculations accordingly to see what kind of returns you can expect.
Split your investment
Sometimes referred to as ‘laddering’ this is where you split your investment across two or more funds to take advantage of higher interest rates for some of your savings, but a shorter term and easier access for a portion of it.
Check your provider’s term deposit terms and conditions
This document is a guide to the terms and conditions of your term deposit. It should also give details of how the interest is calculated and any conditions or penalties you may incur if you withdraw the deposit early.
What’s your tax rate?
If you are on a 30% or 33% tax rate, speak to your provider. A PIE fund investment, which attracts a maximum tax rate of 28%, may be a more beneficial investment option for you.
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