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Your hip-pocket future - treat it seriously!

Peter Switzer
21 November 2016

By Peter Switzer

If you’d prefer to be richer rather than poorer as you get older, it might be a good idea to treat your finances with the respect that many people treat their Facebook page!

Sure, this might be my chosen profession (economist/academic and then financial services/media business builder) that makes me so interested but, genuinely, why wouldn’t all of us have a little bit of interest in the best and worst money deals in town?

Today's news

This morning, the news was that the CBA had cut term deposit interest rates at a time when bond market interest rates were on the rise. The outlook for Aussie interest rates looks like “on hold” for 2017. And a lot of economists think rates will fall in 2018!

I think rates will be on hold for a lot of 2017, but if Donald Trump can stimulate economic growth in the US and inflation starts to rise, then rates there will increase. This could easily encourage our RBA to raise the cash rate in late 2017 or early 2018, especially if our economy is growing nicely, as it expects, and house prices are still elevated. The latter would surprise me but low rates are holding up this market longer than most experts tipped. 

In recent times, I’ve written about the Seven Habits of Highly Wealthy People and I guess the summary of all that was said was: “get serious about your hip-pocket future.”

So when I read that the CBA had reduced its term deposit rates for savers (which included a 15 basis point cut in the one-year rate, to 2.25% for customers with $10,000), I needed to investigate this. Its two-year rate was also cut by 15 basis points, to 2.3%. The three-year rate of 3.2% remains unchanged. And I thought: how bad are these changes?

I’m also inspired to be even more diligent about these issues as I now do a radio show Monday-Thursday on 2UE between 4pm and 5pm so I’m inspired to be across these money developments on a more daily basis.

The best deals around

So I let my fingers do the walking and went to www.ratecity.com.au but I could’ve gone to www.finder.com.au or other “help you get the best deal” websites out there to check it all out.

Using the $10,000 amount and the one-year time frame, I found the Bank of Melbourne, Bank SA and St. George were offering 2.6%, which means a clear half-a-percent better rate! Suncorp was 2.45%.

So a little bit of 'getting serious research' has netted me 2.6% minus 2.25%, which equals an extra 0.35% (or 35 basis points), if I was a term deposit saver.

But as my old mate Tim Shaw once would’ve have advised “but wait, there’s more!”

ING Direct is paying 3%, Me Bank 2.9% and so is Teachers Mutual Bank and UniBank.

By doing a little bit of research, I’ve got an extra 3% minus 2.25%, which is a significant 0.75%! All for an easy five minutes worth of work.

This means if you were a really safe investor and totally scared of the stock market and you had a million dollars in term deposits, your annual return could go from $22,500 to $30,000!

Now let me look at what happens to say your super of $100,000 over a long time at say 6% or 7.2%. 

Using the rule of 72, if you get 6%, then your money doubles every 12 years. But if you get 7.2%, it doubles every 10 years.

Looking at the best and average performing super funds, the difference per annum over a long time can easily be 7.2% versus 6%.

Someone in a 6% super fund sees their money rise like this: 12 years $200,000, 24 years $400,000, 36 years $800,000, and 48 years $1.6 million. So if they worked for 48 years and were lucky enough to have been gifted $100,000 at age 20 and put it into super, that $100,000 becomes $800,000.

However, if they researched their fund and averaged 7.2%, their money doubles this way: 10 years $200,000, 20 years $400,000, 30 years $800,000, 40 years $1.6 million and 50 years $3.2 million!

The un-researched 6% person has $1.6 million after 48 years and the researched person has $3.2 million after 50 years. With that kind of difference in result, our second person can retire earlier and have more money than the person who doesn’t give a fig about getting the best deal!

What about credit cards?

On credit cards, the lowest rate is the Coles Low Rate MasterCard at 9.99% but if you take a cash advance, you’ll pay 19.99%. On the other hand, the ME Frank Credit Card is at 11.99% for credit card purchases and cash advances. Use these two if you care about not ripping yourself off!

Of course, price is not everything. For example, Switzer Home Loans are in the top 10 home loans based on the comparison rate, which adds in the fees. So it’s at 3.89% and there are some slightly lower but some of these are online application loans. Our point of difference, which suits lots of people, is that there are no upfront or ongoing fees and you can talk to a person who will help you through the process. This adds a bit of cost compared to online solutions and that’s why you can pay a bit more.

But what bothers me about the inexperienced money person out there is that a headline interest rate can be a nice 3.74% but when you look at the comparison rate (with fees thrown in) it’s really 4.41%! I always advise that you ask what the comparison rate is!

One of my favourite sayings is: “Anything worth doing, is worth doing for money!”

If you aren’t interested in doing your own money research, then I guess my best advice is to watch this space — Switzer Daily and/or listen to my radio show and/or watch my TV show.

Like the song from the old UK TV program Minder: “I could be so good for you.” Ah yes, I always wanted to be a money minder!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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