You work hard for your money, yet money sitting in the bank isn’t working hard at all. Low interest rates these days are frustrating for savers and those living off their savings (like retired folk), lucky for us inflation is also low so the value of our money is holy steady.
I feel like I worked extra hard for every dollar I saved, those dollars represent a lot of time and sacrifice. So why would I just leave them in any old savings account. Yet so many of us do! Its so easy just to park the money in whatever account our main bank offers. Now I spent almost a week researching which new sheets to buy so why not spend some time researching the options for stashing my cash!
The best way to make your money grow is investing, but it also makes sense to keep some easily available in cash or to invest a portion of your money conservatively in things like term deposits.
So how can you make your cash grow in a low risk way?
Below are some idea’s which might be more relevant for New Zealanders but the point is you can’t just settle for the crappy interest rate your main bank gives you. There are other options with similar is profiles with better returns. Get out there and starting hunting out a better deal!
Shop around for term deposits. You don’t need to stick with your bank, your savings account may only offer 0.5% but there are still term deposits as high as 3.8% to be had. Interest.co.nz has lists of all banking institutions (along with their credit rating) and the term deposit interest rates they offer.
For even better returns you could look to peer 2 peer lending. It is riskier as their can be defaults but some lenders like squirrel offer loan repayment protection so if the borrower defaults you will still get your loans repaid. This makes it a very safe vehicle for investing with much higher returns, my average interest rate with squirrel is currently 8.25%. Be aware that these investments are not liquid and not really a great place to stash cash but you are paid back principal and interest on the investment each month. I mention it because It could be a useful tool for setting up a monthly income stream in retirement.
Banks are now offering cash PIE (Portfolio Investment entity) funds, these funds attract a lower rate of tax so they are a good option if you are in the top tax bracket. (The maximum PIE rate 28% tax while the top income bracket in New Zealand is 33% tax). You can have cash in on call accounts or term deposits as a PIE fund.
Regular savings accounts have really low interest rates right now but if you are willing to look at alternate banks to the big names or credit unions you’ll be able to find rates as high as 3%. Some places are going to require a minimum amount saved before that interest rate applies but some places are offering great rates from the first $1 e.g. Heartland bank are offering 3% from the first dollar saved!
Bonus savings accounts can be a way for the disciplined saver to maximise their interest earnings. Usually there is bonus interest applied each month if the monthly deposit minimum is met and there are NO withdrawals. The pitfall with these types of accounts is that without the bonus interest you don’t really get a return because the base interest rate is so low. If you need to access the money for an emergency that month or to take advantage of a great investment deal you could be forfeiting most of your return.
Theres a big difference between 0.5% and 3% return, so park your cash wisely, mark sure your dollars are working as hard as they can and don’t leave potential returns on the table.