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Active Retirees : Active Retirees Aug-Sept
Active RetireesTM | 41 M any self-funded retirees were rocked by the global financial crisis (GFC) and suffered big losses, which slashed their retirement savings. They began a search for safer and more certain investments. Term deposits have become a solution for many. Term deposits – offered by the likes of banks and building societies – lock in savers for a particular time: anywhere from 30 days to five years. The money deposited can’t be accessed during that time without triggering steep penalty fees. Unlike volatile share and bond portfolios, the value of your investment in term deposits doesn’t change. Despite this capital guarantee, term deposit interest rates are at historic highs and attractive relative to shares and bonds. The interest rate – or return – is also guaranteed for the period you invest. “They (term deposits) are back in fashion at the moment,” said Greg McAweeney, general manager of RaboDirect Australia. “They’re quite popular with self- funded retirees because they give a guaranteed return. The on-call (regular cash accounts) interest rate can vary, and equities go up and down like yo-yos.” Term deposits can be used as a key strategy to secure a pension for the next few years and help retirees sleep better at night. But it’s important to shop around and be mindful of some traps. Up the ante Competition for retail deposits has pushed ter m deposit interest rates to high levels compared to those available in the past. In the wake of the GFC and encouraged by new regulations, banks and other financial institutions have moved to shift their funding away from volatile wholesale markets to more stable retail deposits. To attract deposits they’ve upped interest rates on term deposits. A typical five-year term deposit might pay 6-7 per cent interest, well above the RBA cash rate of 4.75 per cent. But not all term deposits are equal; rates vary across institutions. “Make sure you shop around for specials,” said Travis Morien, director of Australian Independent Financial Advisers, an independent fee-for -service financial planner. “Rates can vary widely between banks and even within a bank for different periods.” » Active RetireesTM | 41 FINANCE Lock it in? With retirement savings rocked by the GFC, is it worth now turning to the relative safety of term deposits? Ben Power asked the experts. Putting a series of future pension payments in something such as a term deposit takes a lot of stress out of the equation.
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