How to invest to save money
A tried and tested way to save money is with a savings account. A savings account is simply a bank account that you use to accrue interest, growing your initial deposit. The interest rate on a savings account does fluctuate, however it is not particularly volatile. With the RBA cash rate sitting at a record low 0.10%, savings accounts may not add much to your money at the moment. Although, a savings account could still be a suitable option for those who want guaranteed returns and wish to add to their initial deposit at any time as well.
→Related article: Highest-interest savings accounts on Canstar’s database
Savings Account Bonus interest rates
To help entice new customers, some institutions are offering ‘bonus introductory interest rates’ that will likely have an expiry date, or conditional bonus interest rates that require you to meet a number of conditions to receive the bonus rate. These may include, depositing a certain amount of money into your account each month, making no withdrawals during the month and/or having a linked transaction account. Be aware that for some of these accounts, if you fail to meet the bonus interest conditions, you will receive little or no base interest. Check with the provider to confirm what conditions may apply.
A term deposit is an investment of cash placed with a financial institution for a fixed period of time (known as a term) and with a fixed interest rate. A term can be anywhere from one month to five years. And there is generally a minimum amount you need to invest to get started. This typically low-risk option may suit those who prefer receiving a set return instead of anxiously watching the daily fluctuations of the share market. Although, bear in mind if you need to withdraw your funds before your term is up, it is likely that you will incur a fee. Term deposits are generally available at banks, credit unions and building societies.
The interest rates on term deposits also tend to vary a lot, depending on the provider and the term. With movements in both directions possible, it can pay to shop around.
The following table displays a snapshot of term deposits with a term range between 11-24 months with interest paid as specified. This is based on an investment of $50,000 in a personal term deposit and is sorted by the highest advertised rate for a 12-month term, and finally by shortest payment frequency. For more information and to confirm whether a particular product will be suitable for you, check upfront with your provider and read the Product Disclosure Statement before making a decision.
|Company||Interest Payment Frequency and Features||11 months||12 months||13 months||15 months||18 months||24 months|
|BankVic||Term Deposit (l20) | Paid annually||–||1.05%||–||–||0.90%||0.90%|
|BankVic||12 Months Regular Income | Paid annually, quarterly, monthly or fortnightly||–||1.00%||–||–||–||–|
|Judo Bank||Personal Term Deposit | Paid end of term||–||0.95%||–||–||–||1.20%|
|Judo Bank||Personal Term Deposit | Paid annually||–||0.95%||–||–||–||1.15%|
|Teachers Mutual Bank||Term Deposit | Paid annually or monthly||–||0.90%||0.90%||0.90%||0.90%||0.90%|
|UniBank||Term Deposit | Paid annually or monthly||–||0.90%||0.90%||0.90%||0.90%||0.90%|
|abal banking||Term Deposit | Paid end of term||–||0.85%||–||–||–||–|
|Judo Bank||Personal Term Deposit | Paid monthly||–||0.85%||–||–||–||1.10%|
|Source: Canstar, as at 23 February 2021.|
→Related article: Highest Term Deposit Rates on Canstar’s database
Investing on the stock market
Shares aren’t typically thought of when saving money, however, a recent eToro survey found 21% of Queenslanders are investing on the stock market to save for a house and a whopping 68% of South Australians prefer to invest in the share market rather than leaving their money in a bank. It is not too surprising given the current record-low interest environment.
What returns would you expect from investing on the stock market?
It’s difficult to measure the returns from the share market as it is especially volatile and there’s no guarantee of a return at all. For example, as of February 2021 the five-year return of the ASX 200 was 33%. On the flip side, the year-to-date return of the ASX 200 is actually a loss of 0.31%.
Investing on the stock market isn’t suitable for everyone and often requires a lot of time to properly research which companies to invest in and even then there are no guarantees.
→Related article: 4 Financial risks that all Investors should be aware of
Online Share Trading platforms
With an online share trading platform you can buy individual shares, ETFs, LICs and other financial products. They are generally easy to set up and navigate, the difficulty lies in deciding which platform is right for you, taking into consideration the fees and the features that are available.
If you’re comparing online share trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to providers’ websites. The information displayed is based on an average of six trades per month. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of online share trading companies.
Investing with managed funds
If you want to invest on the stock market but would prefer the expertise of a professional fund manager, then managed funds might be worth exploring. A managed fund is a pooled investment option where investors don’t directly own the assets but instead owns units in the fund. With this investment option a professional fund manager will buy and sell assets, such as shares and bonds, on your behalf.
There are many different managed funds to choose from, therefore, fees and returns will vary too. Investing in a managed fund could help you reach your savings goal faster than a term deposit or a savings account, but just like investing directly on the share market, you could end up with a loss.
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