Fixed-interest investments and other low-risk options
A fixed-interest investment is any investment option with a fixed rate of interest (i.e. not affected by the fluctuating market rate – the opposite of a variable-interest investment). These can be common products, such as deposit accounts (like those found at banks, building societies, credit unions and so on), and also investment opportunities, including Cash Management Trusts (CMTs) (investing money in debentures, bank bills, Government and corporate bonds, etc). High interest savings accounts also fall under this category and, certainly with regards to the highest interest savings accounts available, can be the best option in terms of risk factor and availability (having negligible risk and constant availability).
CMTs don’t necessarily offer a better rate of interest (at least a noteworthy one, anyway) unless they also come with potentially decisive drawbacks; the highest interest rate CMTs will almost always put limits on your access to the funds, limiting withdrawals or even locking funds away for a set time. In addition, these higher interest rate CMTs will almost certainly have a higher management fee rate. This leaves the highest interest rate savings accounts looking considerably more attractive and considerably less boring, but they too should be treated with caution sometimes.
Very high interest savings accounts: Outside the mainstream
From time to time you might find an offer with a noticeably high interest rate far above the market average (and that of the leading mainstream institutions), but the old adage about an offer being too good to be true will probably set off alarm bells. Except in highly unusual cases, this will probably be justified, since stand out high interest rates, significantly above the norm, will probably be bringing a great deal more risk for not necessarily much more yield. Suzanne Haddan of BFG Financial Services recommends the cautious approach, saying, “If someone is offering you 9 per cent guaranteed, how are they doing that when your bank is only offering 7 per cent? They’re doing something high-risk, aren’t they?” (Sydney Morning Herald, 30 January 2008).
The term deposit option
Term deposits are another alternative, but again, unlike the best high interest savings accounts, money is essentially locked away out of reach and cannot be accessed in difficult times without triggering penalty fees. Credit Union Australia offers a deposit rate of 7.50%p.a., but over a strict 7-11 month term and only with a minimum deposit of $10,000. This means that you won't have access to your cash for at least seven months, and you have to have a fairly sizeable chunk to invest to begin with (although this probably won't be an issue for those looking to make a serious investment). The main issue is that, whilst term deposit accounts aren't as risky (and therefore can’t allow investors to demand a dramatically higher interest rate than savings accounts), your money won't perform much better at all than with a 7% plus high interest savings account, which of course begs the question: why not stick to a savings account offering constant access to your funds?
Choosing a high interest savings account from a bank or building society may seem like it isn’t making your money work hard enough (if your financial standing is good and you are looking to do something different), but such a move shouldn’t be dismissed lightly. With savings accounts being ever more competitive, and offering the same access as current accounts, with the returns of term deposits in the best cases, this minimum risk solution is an easy choice for some investors.
