Do you want to be cashed up? In a time when cash is king, make sure you choose the best option for you.
Stashing your dollars under the mattress doesn’t have much appeal for many of us but be careful that you’re not doing the modern day equivalent when you use cash investments.
The reason the mattress isn’t such an attractive idea is that, apart from the obvious security issues, the value of your stash falls over time. You earn no interest and there’s no capital growth.
There could be a similar result if you don’t think through the options available for cash investments. It may mean lost opportunities and fail to maximise the returns from your most liquid assets.
While the everyday bank account will always score highly as a convenient place to park your cash, it comes at a price.
A better option for your cash reserves could be a high-interest savings account. Here, your cash can be earning more than a typical transaction account.
A slightly higher rate of interest again can be earned in a term deposit. In return for agreeing to tie up your cash for a set period of time, usually between a month and five years, you’ll earn more.
The longer the period, the higher the interest. Term deposit accounts often require a minimum amount of around $1,000 to $5,000.
You’ll need to be certain that you won’t need the money for the fixed term because withdrawing funds early can attract penalties.
Also, don’t forget to keep track of when the term expires so that you can plan what to do next. Unwittingly allowing the term deposit to rollover into another term might not be best for your circumstances at the time.
Of course, there are many other ways to hold cash investments, such as managed funds that either focus purely on cash investments, or include a large holding of cash investments as part of their portfolio.
What suits you?
Another way to take advantage of the security and performance of cash and fixed interest is to change the asset allocation in your superannuation or pension fund.
You can manipulate your investments inside your fund to create a portfolio that suits the market conditions and your own goals.
Source: Colonial First State Investments