# Term deposits



## NewOrder (24 July 2011)

For the sake of the example, say you put $50000 into a term deposit for 12 months, are you better to do 12 x consecutive 1 month accounts at 2.5% or 1 x 12 month term paid monthly at 5.84%

Or, what is the best way to set up a term deposit?


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## pixel (24 July 2011)

NewOrder said:


> For the sake of the example, say you put $50000 into a term deposit for 12 months, are you better to do 12 x consecutive 1 month accounts at 2.5% or 1 x 12 month term paid monthly at 5.84%
> 
> Or, what is the best way to set up a term deposit?



 The interest is usually quoted as per cent per year. Therefore 6% p.a. beats 2.5% p.a. any time. If the numbers are closer together, there could be a very tiny difference between, say, 4 quarterlies vs one annual; but the banks aren't stupid - trust them to quote you the annual figure that sounds best, but if you go for a shorter period, they won't divide the annual rate by 4 (or 12), but do it the mathematically correct way, using the 4th (or 12th) root of the compounding factor.

Whenever I decide it's time to put a set amount away for a few months, I usually visit  
http://www.ratecity.com.au/term-deposits
and pick the highest offer currently available.


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## cynic (24 July 2011)

pixel said:


> The interest is usually quoted as per cent per year. Therefore 6% p.a. beats 2.5% p.a. any time. If the numbers are closer together, there could be a very tiny difference between, say, 4 quarterlies vs one annual; but the banks aren't stupid - trust them to quote you the annual figure that sounds best, but if you go for a shorter period, they won't divide the annual rate by 4 (or 12), but do it the mathematically correct way, using the 4th (or 12th) root of the compounding factor.
> 
> Whenever I decide it's time to put a set amount away for a few months, I usually visit
> http://www.ratecity.com.au/term-deposits
> and pick the highest offer currently available.




I thought there was a distinction in the industry between "per annum" and the effective annual rate. Hence I've always done my own calculations when translating from the p.a. to the effective annual rate prior to deciding which was best. Was I mistaken in this viewpoint?


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## skc (24 July 2011)

NewOrder said:


> For the sake of the example, say you put $50000 into a term deposit for 12 months, are you better to do 12 x consecutive 1 month accounts at 2.5% or 1 x 12 month term paid monthly at 5.84%
> 
> Or, what is the best way to set up a term deposit?




Is that 2.5%p.a.? There is no way someone is offering 2.5% per month! Unless you are talking about the Zimbabwe dollar or something!

To work out how much interest you get per month from 2.5% per annum, simply divide 2.5%/12 = 0.20833% (or 0.0020833) per month. If you do that over 12 consecutive months, simply calculate (1+0.20833%) to the power 12 which gives 1.025288, which means effective annual rate of 2.5288%. Slightly but not much better than 2.5% but it does illustrate the principles of compound interest.


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## NewOrder (24 July 2011)

skc said:


> Is that 2.5%p.a.? There is no way someone is offering 2.5% per month! Unless you are talking about the Zimbabwe dollar or something!
> 
> To work out how much interest you get per month from 2.5% per annum, simply divide 2.5%/12 = 0.20833% (or 0.0020833) per month. If you do that over 12 consecutive months, simply calculate (1+0.20833%) to the power 12 which gives 1.025288, which means effective annual rate of 2.5288%. Slightly but not much better than 2.5% but it does illustrate the principles of compound interest.




yes it is 2.5%pa, sorry I should have made that clearer. The figures are from the ANZ


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## skc (25 July 2011)

NewOrder said:


> yes it is 2.5%pa, sorry I should have made that clearer. The figures are from the ANZ




I hope you understand that the 5.84% 12month deposit is far superior to your 12x 1month at 2.5% p.a.

If you have any doubt please read up on basic interest rate calculations. Wikipedia would probably do.


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## Julia (25 July 2011)

NewOrder said:


> For the sake of the example, say you put $50000 into a term deposit for 12 months, are you better to do 12 x consecutive 1 month accounts at 2.5% or 1 x 12 month term paid monthly at 5.84%
> 
> Or, what is the best way to set up a term deposit?



I'm puzzled that you're even thinking about going for 2.5% p.a. as against 5.84%?
Further point to consider is that if you only commit for a one month period, assuming you can renew at same or better rate, how are you going to feel if rates drop?

I never place more than 25% of the intended total deposit into a single term deposit.  That way, if the really unexpected occurs, and  you need the money, you are at least not losing the interest on the whole amount.


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## Huskar (25 July 2011)

You don't even need to lock your money away in a term deposit and you can still get a better return than 5.84% (or 2.5%), eg a 6% pa savings account with UBank, 6.51% if you deposit a certain amount per month (no affiliation).


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## Tysonboss1 (25 July 2011)

Huskar said:


> You don't even need to lock your money away in a term deposit and you can still get a better return than 5.84% (or 2.5%), eg a 6% pa savings account with UBank, 6.51% if you deposit a certain amount per month (no affiliation).




I tend to agree,

But would like to here from any advocates of term deposits as to the pros that I may be missing.

I far as I can see locking your money away, at a lower interest rate means your losing out on interest and missing the opportunity to deploy quickly if needed.


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## ajjack (25 July 2011)

For larger amounts, you cannot beat a Cash Manag Account,
especially for those who trade the markets regularly.

Interest rate around 5% paid monthly and funds at call,  there 
is no need to lock yourself in for any fixed term.


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## pixel (25 July 2011)

ajjack said:


> For larger amounts, you cannot beat a Cash Manag Account,
> especially for those who trade the markets regularly.
> 
> Interest rate around 5% paid monthly and funds at call,  there
> is no need to lock yourself in for any fixed term.



 That's OK for those of us who trade regularly; RBA's cash rate (currently 4.75%) calculated daily, and no account or transaction fees, that's about industry standard these days.

But even so, some traders - yours truly included - may want to have a certain part of their total assets secured at a guaranteed fixed interest. Especially if it's tax-free under Superannuation rules, an ANZ 9-month td suits me fine at 6.5% p.a.

Which, in answer to *tysonboss1*, can make a term deposit look pretty attractive.


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## NewOrder (25 July 2011)

Julia said:


> I'm puzzled that you're even thinking about going for 2.5% p.a. as against 5.84%?
> Further point to consider is that if you only commit for a one month period, assuming you can renew at same or better rate, how are you going to feel if rates drop?
> 
> I never place more than 25% of the intended total deposit into a single term deposit.  That way, if the really unexpected occurs, and  you need the money, you are at least not losing the interest on the whole amount.




I am often puzzled too by my questions  OK I have never really held any cash so have no experience with term deposits. When I looked at the term deposit rates they are all over the place with the 4 mth rate being much higher than the 6 or 9 mth rate.

Anyway a cash management account sounds like a good way to go.


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## Julia (25 July 2011)

Tysonboss1 said:


> I tend to agree,
> 
> But would like to here from any advocates of term deposits as to the pros that I may be missing.
> 
> I far as I can see locking your money away, at a lower interest rate means your losing out on interest and missing the opportunity to deploy quickly if needed.



As a general principle, I agree with you.  There are, however, exceptions.
Pixel has given you an example.
I will always keep a proportion of my SMSF in cash, regardless of what the market is doing.  Hence when there was briefly available about 18 months ago a five year term deposit at 8% p.a. I was very happy to commit this proportion.  I think it will be a pretty long time before we see 8% again.  



NewOrder said:


> I am often puzzled too by my questions  OK I have never really held any cash so have no experience with term deposits. When I looked at the term deposit rates they are all over the place with the 4 mth rate being much higher than the 6 or 9 mth rate.



Banks offer TD rates according to their own needs.  So if they foresee a demand over a given period and they need to shore up their deposits, they will put out an offer for an attractive rate.  Don't assume necessarily that the longer the term, the higher the rate.



> Anyway a cash management account sounds like a good way to go.



 I have no idea why anyone would choose the usually much lower rates on a cash management a/c when better rates are available in several online at call accounts, deposits in which are immediately available.

New order, have a look at this website which lists all the available rates on the various types of accounts:

http://www.infochoice.com.au/


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## medicowallet (25 July 2011)

Julia said:


> I have no idea why anyone would choose the usually much lower rates on a cash management a/c when better rates are available in several online at call accounts, deposits in which are immediately available.
> 
> New order, have a look at this website which lists all the available rates on the various types of accounts:
> 
> http://www.infochoice.com.au/




100% agree. It is amazing how many people I know with very sizeable cash holdings, have them at 5% or so.

Bit sad really.  The best ones are online, can be setup online, and mostly do not offer "advisors" any commission.


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## Tysonboss1 (25 July 2011)

Julia said:


> I will always keep a proportion of my SMSF in cash, regardless of what the market is doing.  Hence when there was briefly available about 18 months ago a five year term deposit at 8% p.a. I was very happy to commit this proportion.  I think it will be a pretty long time before we see 8% again.




whats your take on issues such as CBA perils, do you see a place for these in you portfolio.


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## pixel (26 July 2011)

Julia said:


> I have no idea why anyone would choose the usually much lower rates on a cash management a/c when better rates are available in several online at call accounts, deposits in which are immediately available.http://www.infochoice.com.au/



 Hi Julia,
IMHO it's horses for courses:
If I want to trade through an online broker, I'll have to use one of the accounts my broker of choice favours. Sure - just by way of an example: Westpac would agree to do all electronic transactions at T+3 through a Macquarie CMA - which in the past offered the most attractive rate. Problem was, Westpac offered me a $5 lower brokerage if I used a Westpac account. (They have since offered a product that matches the Macquarie conditions as well. No-brainer.)
Now, you do the sums: 700 trades per annum, times $5: By how much will the special rate of another bank have to exceed the RBA's cash rate (4.75%) in order to make me choose them over Westpac?
I reckon you get the idea


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## skc (26 July 2011)

medicowallet said:


> 100% agree. It is amazing how many people I know with very sizeable cash holdings, have them at 5% or so.
> 
> Bit sad really.  The best ones are online, can be setup online, and mostly do not offer "advisors" any commission.




Most online high interest saving accounts have limit of $1m. So that "very sizeable" cash holding can't really live there without special arrangement.


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## Julia (26 July 2011)

pixel said:


> Hi Julia,
> IMHO it's horses for courses:
> If I want to trade through an online broker, I'll have to use one of the accounts my broker of choice favours. Sure - just by way of an example: Westpac would agree to do all electronic transactions at T+3 through a Macquarie CMA - which in the past offered the most attractive rate. Problem was, Westpac offered me a $5 lower brokerage if I used a Westpac account. (They have since offered a product that matches the Macquarie conditions as well. No-brainer.)
> Now, you do the sums: 700 trades per annum, times $5: By how much will the special rate of another bank have to exceed the RBA's cash rate (4.75%) in order to make me choose them over Westpac?
> I reckon you get the idea



Sure, but New Order didn't give any indication that she was taking anything like number of trades or any other qualifying factors into consideration and was sounding as though she was going to choose a cma over some of the more rewarding accounts available.  Hence my giving her the infochoice link.




skc said:


> Most online high interest saving accounts have limit of $1m. So that "very sizeable" cash holding can't really live there without special arrangement.



 That's so true and very irritating.  Funny you should raise this as I've been giving some thought to pulling some funds out of my SMSF and investing in my own name to a level which takes advantage of the low income tax offset.  This would also get round the decision by quite a few of the banks that they won't make their top online rates available to super funds.  Presently I don't have anything to speak of invested outside of my SF.  Does anyone have any thoughts about this, e.g. something I'm failing to consider?


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## Julia (26 July 2011)

Tysonboss1 said:


> whats your take on issues such as CBA perils, do you see a place for these in you portfolio.



Tyson, I haven't used these, so can't really comment.
I know Bill M and some other members do.
Considerable discussion on this thread:
https://www.aussiestockforums.com/forums/showthread.php?t=15124&highlight=hybrid+securities


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## NewOrder (26 July 2011)

Julia said:


> Banks offer TD rates according to their own needs.  So if they foresee a demand over a given period and they need to shore up their deposits, they will put out an offer for an attractive rate.  Don't assume necessarily that the longer the term, the higher the rate.
> 
> 
> I have no idea why anyone would choose the usually much lower rates on a cash management a/c when better rates are available in several online at call accounts, deposits in which are immediately available.
> ...




Thanks Julia and others for the info. I have looked at the linked site and will do more research as to the options but it is apparent that I need to put some thought into my objectives first.
Might sound odd but I have never really held any cash as it has always gone to paying for life and property, so yes I am nieve but that's why I am here asking questions


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## Julia (26 July 2011)

Keep asking whatever you need to, new order.   Apologies if I've created an impression you should have understood how the interest rate stuff works.


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## Garpal Gumnut (3 November 2022)

As interest rates look set to increase in to 2023 I thought I should resurrect this thread. 

I have been in to Canstar, Google and a few other sites but it is all in flux atm.

I would be interested ( inside joke ) in ASF members experience recently with putting lazy money in to interest bearing deposit accounts with Australian based banks. 

As you can see as of yesterday it is not a simple task to find the best rate, for the amount one wishes to deposit for the time one wishes to be separated from one's moolah without penalty. 






						Compare High Interest Savings Accounts | Canstar
					

Compare High Interest Savings Accounts from over 60 providers. Review account interest rates, account fees & more side by side. Compare now.




					www.canstar.com.au
				




Their most recent update.





> Which banks have increased their savings rates?​We’ll be updating this article as changes come through from the major banks and other institutions.
> ANZ​Following the RBA’s November cash rate call, ANZ will increase the rate on the ANZ Plus Save account by 0.25%pa to 3.50%pa for balances less than $250,000, effective from November 10 2022.
> Bankwest​BankWest has announced changes to some of its savings and deposit products, as follows:
> 
> ...




 gg


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## Dona Ferentes (3 November 2022)

TDs are fine, as they fall in the $250K guarantee, but the money gets locked away   .. and what is your view on interest rates going forward? If the RBA keeps raising (to contain inflation) then locking in to a TD will bring lower returns, whereas if the cycle is close to peaking, then a TD may be beneficial.

A lot of it depends where, what and how you want to sit on the Risk / reward / Timeline profile.. In interest-rate land when looking for income but not capital gains, there can be three forms of return, Fixed rate, Floating rate and Inflation linked. And, as per the first point, there are trade-offs


 That's the more arcane overview; more simply it can be put like this:



...but as an aside, there was an article recently that said ASX listed Hybrids (Capital Notes) are offering higher returns than shares, in the current market. Recently:


> CBA is raising $750 million of hybrid capital to strengthen its balance sheet with a capital note called PERLS XV that will have a floating yield of around 5.84 per cent and matures in 2031. NAB Capital Notes 3 is offering 7.19 per cent yield to maturity and Macquarie Bank Capital Notes 2 has a 7.07 per cent yield to maturity.



Or you can go through an ETF, get diversification but give up 0.35% in MER, and buy a Capital Note ETF.

And, at present, the wacky world of T2 subordinated debt is actually offering better returns than T1 Hybrids. ... here is a link:








						Less risk, similar returns - Tier 2 OTC bonds better value than listed Tier 1 hybrids
					

OTC Tier 2 notes offer better value compared to Tier 1 listed hybrids.




					thewire.fiig.com.au
				




Disc:  _As a soph, I have an OTC bond allocation through FIIG. I lose 0.20%pa in management fees from the stated return but hold a bunch of Inflation linked bonds. Directly. _


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## againsthegrain (3 November 2022)

I got my money spread through 6 different banks in various savers.  My best one is with st George at 3.15%  worst one with Anz at 2%
By doing this I have the 250k guarantee,  also different banks and saver accounts might have different increases in the future. 

I don't think there is a point at locking in a rate, things will be fluid for a while.

Cleaned up 1k in interest last month, things are starting to look decent... as long as u forget inflation is most likely double digit 😔


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## Value Collector (3 November 2022)

againsthegrain said:


> I got my money spread through 6 different banks in various savers.  My best one is with st George at 3.15%  worst one with Anz at 2%
> By doing this I have the 250k guarantee,  also different banks and saver accounts might have different increases in the future.
> 
> I don't think there is a point at locking in a rate, things will be fluid for a while.
> ...



Have you taken a look at Plenti.

Minimum deposit is only $10, it might be worth having a look at it, even if it’s just with a little bit of play money at first


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## againsthegrain (3 November 2022)

Value Collector said:


> Have you taken a look at Plenti.
> 
> Minimum deposit is only $10, it might be worth having a look at it, even if it’s just with a little bit of play money at first



Actually you recommend it to me a good year+ ago and I have been sitting on the fence about it since then 4.8% currently I Just checked it sure does sound very sweet. 

Have you ever had anybody default on their loan?


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## InsvestoBoy (3 November 2022)

againsthegrain said:


> I got my money spread through 6 different banks in various savers.  My best one is with st George at 3.15%  worst one with Anz at 2%
> By doing this I have the 250k guarantee,  also different banks and saver accounts might have different increases in the future.
> 
> I don't think there is a point at locking in a rate, things will be fluid for a while.
> ...




Given the shape of the government bond yield curve, you can get similar or better rates from the ASX listed bond CDIs if you don't want to have to spread your money across banks trying to keep the guarantee (government bonds are similarly guaranteed but you can buy as many as you like).

The lowest duration bond on the curve is yield-to-maturity 3.2%.









						Bonds - prices
					

Invest in a range of tradeable government bonds and corporate bonds. Get the latest prices for exchange-traded treasury bonds, exchange-traded treasury indexed bonds, corporate fixed bonds and corporate floating bonds.




					www2.asx.com.au


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## InsvestoBoy (3 November 2022)

Even inflation linked bonds are now offering a real return for the first time in ages.






						iShares Government Inflation ETF | ILB
					

The fund aims to provide investors with the performance of the Bloomberg AusBond Inflation Government 0+ Yr IndexSM, before fees and expenses. The index is designed to measure the performance of a segment of the Australian bond market comprised of inflation-linked fixed income securities.




					www.blackrock.com
				




This real yield was above 1% quite recently.


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## InsvestoBoy (3 November 2022)

Dona Ferentes said:


> Disc:  _As a soph, I have an OTC bond allocation through FIIG. I lose 0.20%pa in management fees from the stated return but hold a bunch of Inflation linked bonds. Directly. _




Did you know about Government bond CDIs? You can buy the inflation linked bonds, directly, yourself, with no 0.2%pa fee (although there is a spread from the market maker).

Click "Exchange-traded Treasury Indexed Bonds"









						Bonds - prices
					

Invest in a range of tradeable government bonds and corporate bonds. Get the latest prices for exchange-traded treasury bonds, exchange-traded treasury indexed bonds, corporate fixed bonds and corporate floating bonds.




					www2.asx.com.au


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## qldfrog (4 November 2022)

InsvestoBoy said:


> Did you know about Government bond CDIs? You can buy the inflation linked bonds, directly, yourself, with no 0.2%pa fee (although there is a spread from the market maker).
> 
> Click "Exchange-traded Treasury Indexed Bonds"
> 
> ...



I have had them for ages just buy on market with usual broker fees.
As inflation popped up, i closed the fixed rate ones and kept the inflation linked ones.
It is not perfect: as all bonds, these got smashed on the way down in recent years but regular  distribution and as safe as can be ,with full availability/flexibility so i kept these more than TD.


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## Value Collector (4 November 2022)

againsthegrain said:


> Actually you recommend it to me a good year+ ago and I have been sitting on the fence about it since then 4.8% currently I Just checked it sure does sound very sweet.
> 
> Have you ever had anybody default on their loan?



The longer term loans are at about 6%, also the pay monthly principle an interest payments, so you don’t have to wait the full term to get all your capital back, some loans also get paid off early.


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## bluekelah (4 November 2022)

I don't do term deposits but my everyday savings account with ING Bank is now doing 4.05% interest pa, calculated daily,paid monthly, and with some other small restrictions like having to end the month with higher amount than month before (not an issue just top up a few bucks end of the month) and using their debit card for groceries. It was just at 3 percent last month or so. Dang rates going up quick.


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## divs4ever (4 November 2022)

Dona Ferentes said:


> TDs are fine, as they fall in the $250K guarantee, but the money gets locked away   .. and what is your view on interest rates going forward? If the RBA keeps raising (to contain inflation) then locking in to a TD will bring lower returns, whereas if the cycle is close to peaking, then a TD may be beneficial.
> 
> A lot of it depends where, what and how you want to sit on the Risk / reward / Timeline profile.. In interest-rate land when looking for income but not capital gains, there can be three forms of return, Fixed rate, Floating rate and Inflation linked. And, as per the first point, there are trade-offs
> View attachment 148800
> ...



 a fair bit  of book-work   ( learning about the various bonds, hybrids and notes ) but CAN ( not always ) be a nice deal 

 a small gotchya in 'inflation adjusted '  is a lagging rise 

 the official sources have to calculate the CPI ( previous increases ) first and THEN apply the new rate  ... i mostly went for BBSW based calculations of interest  , far from perfect but more agile and reflexive .

 HOWEVER researching this area MIGHT be lucrative in an era of rising 'inflation'( interest rates )

 if you have questions in this area .. a financial adviser  is certainly a good place to ask ( don't forget your tax accountant for the tax implications , as well )

 i tended to buy ( between 2011 and 2015 ) specific notes , bonds etc.  because like ETFs you really need to get deep into the paper-work to get best out of these things


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## divs4ever (4 November 2022)

againsthegrain said:


> I got my money spread through 6 different banks in various savers.  My best one is with st George at 3.15%  worst one with Anz at 2%
> By doing this I have the 250k guarantee,  also different banks and saver accounts might have different increases in the future.
> 
> I don't think there is a point at locking in a rate, things will be fluid for a while.
> ...



 check which banks trade under which ADI   ,  last i heard St. George  trade under the WBC  ADI  so are classed as the same 'bank ' for the purposes of the deposit guarantee  ( as an example )

 sometimes losing less money/spending power than most is 'winning '


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## againsthegrain (4 November 2022)

divs4ever said:


> check which banks trade under which ADI   ,  last i heard St. George  trade under the WBC  ADI  so are classed as the same 'bank ' for the purposes of the deposit guarantee  ( as an example )
> 
> sometimes losing less money/spending power than most is 'winning '



I believe this is the list, I have researched it






						List of authorised deposit-taking institutions covered under the Financial Claims Scheme | APRA
					

The authorised deposit-taking institutions (ADIs) listed at the bottom of this page are all covered under the Financial Claims Scheme (the FCS).




					www.apra.gov.au


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## divs4ever (4 November 2022)

againsthegrain said:


> I believe this is the list, I have researched it
> 
> 
> 
> ...



 yes it has changed in places since i last used term deposits  ( the last few years  i was doing better elsewhere , including shares in the bank themselves )

 that does not mean i will not use them again sometime in the future


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## againsthegrain (4 November 2022)

divs4ever said:


> yes it has changed in places since i last used term deposits  ( the last few years  i was doing better elsewhere , including shares in the bank themselves )
> 
> that does not mean i will not use them again sometime in the future



I guess that is diversification,  bank interest is as safe as you get, I do also collect some dividents and have pm even got my ass kicked on a few specs.... im not really a adrenaline junky


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## againsthegrain (4 November 2022)

I just saw this advertised: 
St.George Incentive Saver total variable rate with bonus interest will increase by 0.85% p.a. to 4.00% p.a., effective 9 November."

Things are still on the move and looks like will be for a while


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## Belli (4 November 2022)

againsthegrain said:


> I just saw this advertised:
> St.George Incentive Saver total variable rate with bonus interest will increase by 0.85% p.a. to 4.00% p.a., effective 9 November."
> 
> Things are still on the move and looks like will be for a while




ING Direct.  The current rate is before the recent RBA increase so it'll probably go up soon.  Some additional benefits for Orange Card holders.









						High Interest Savings Account. Savings Maximiser | ING
					

Savings Maximiser is our high interest savings account, offering a high variabe interest rate and no ING fees. Find out more.




					www.ing.com.au


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## divs4ever (4 November 2022)

againsthegrain said:


> I guess that is diversification,  bank interest is as safe as you get, I do also collect some dividents and have pm even got my ass kicked on a few specs.... im not really a adrenaline junky



 i am ( was ?? ) an adrenaline junkie ,  but  in the last 11 years i really NEEDED to tone that down  ( most addictions  you are never completely cured of , you might control it , more often resist it  , but gone forever .. that isn't the norm )

 specs  are a percentage game ( imo ) you pick mostly duds  , but the winners  can be ten-baggers , twenty-baggers  and  a rare monster  ( one-hundred-bagger plus ) 

 one ten-bagger neutralizes  ten absolute busts  ( when you crystallize the gains )

 or course some  can pick on ten-bagger in every 4 speccies  ( that ain't me )

 the Cyprus ( and Greece ) saga  rattled my faith in Sovereign debt and government guarantees  , and several changes later ( like 'bail-in' laws ) haven't restored that faith 

 and you certainly need higher TD rates than currently offered to lure me back  into any meaningful position into that area ( compared to selected corporate debt )


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## qldfrog (4 November 2022)

againsthegrain said:


> I believe this is the list, I have researched it
> 
> 
> 
> ...



Citibank (australia retail) has just been bought back by NAB so that is one less gov guarantee for me


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## Value Collector (21 December 2022)

againsthegrain said:


> Actually you recommend it to me a good year+ ago and I have been sitting on the fence about it since then 4.8% currently I Just checked it sure does sound very sweet.
> 
> Have you ever had anybody default on their loan?



Plenti have a new market that just opened on their lending platform earning 9.2%.


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## Dona Ferentes (21 December 2022)

_And as always, risk and reward!

 Christopher Joye, often a fear-mongerer, wrote last week:_
" ....the industry sector with the highest proportion of zombie [companies] in Australia is real estate, including construction, residential developers and commercial property, which is one reason why banks do not normally lend much to these companies. They have instead been forced to seek finance from non-bank lenders that charge higher interest rates in exchange for taking on the risk that these zombies default on their debts.

"The looming global recession has all the makings of a mega default cycle that will see many zombies wiped out in both the corporate and household sectors. The last time we had this sort of cathartic capitalistic clearing of the dead-wood in the economy was the 1991 recession. None of the current crop of non-bank lenders were in business back then."

_Is such a scenario about to play out? I'd hope not but a rate like 9.2% is well north of BBSW by about 6%. Not investment grade._


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## InsvestoBoy (21 December 2022)

Dona Ferentes said:


> _And as always, risk and reward!_
> 
> _Christopher Joye, often a fear-mongerer, wrote last week:_
> " ....the industry sector with the highest proportion of zombie [companies] in Australia is real estate, including construction, residential developers and commercial property, which is one reason why banks do not normally lend much to these companies. They have instead been forced to seek finance from non-bank lenders that charge higher interest rates in exchange for taking on the risk that these zombies default on their debts.
> ...




I like Joye, he has been spot on about a lot of things for quite a while. Certainly could've made some serious money listening to his public calls. Funny to be called a fear monger considering he was a resolute housing bull for soooooo long against all the crash callers and was proven correct every step of the way. If the guy spent something like a decade being right on housing going up says it's going to go down, maybe worth a listen.


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## Dona Ferentes (21 December 2022)

InsvestoBoy said:


> I like Joye,...



Tend to agree. Coolabah Capital is one of the better houses around for pricing debt; mainly works with insto money.









						Home - Coolabah Capital Investments
					

Coolabah Capital Investments Pty Ltd is a leading active long and long-short credit manager based in Australia that is responsible for managing the Smarter Money Investments portfolios, the BetaShares Active Australian Hybrid ETF (ASX: HBRD) and numerous institutional mandates.




					coolabahcapital.com


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## Value Collector (21 December 2022)

Dona Ferentes said:


> _And as always, risk and reward!_
> 
> _Christopher Joye, often a fear-mongerer, wrote last week:_
> " ....the industry sector with the highest proportion of zombie [companies] in Australia is real estate, including construction, residential developers and commercial property, which is one reason why banks do not normally lend much to these companies. They have instead been forced to seek finance from non-bank lenders that charge higher interest rates in exchange for taking on the risk that these zombies default on their debts.
> ...



As with all investments in Plenti, you have the protection of the provision fund, which currently has over $13 Million in it, and which for the last 10 years has ensured not a single $1 of principle or interest has been lost by any Plenti investors.

Is it possible that if defaults skyrocketed above what the provision fund could handle that some of your capital will be eaten into?…. Yes totally possible, but it’s secured by a diversified portfolio of loans and the way I think of it is that even if defaults went 10 times higher than the current 1%- 2%, and exhausted the provision fund, you might only lose 10% or 15% of your capital that year, because the interest on all the loans that didn’t default that year offset some of the loss.

So I think of it like an investment earning 9.2% that 1 year out of 20 might lose 15%, the odds are definitely in your favour.

With term deposits you are guaranteed to lose in an after tax and inflation sense, with a 9.2% you are going to come out on top.

Are you further up the risk ladder? Yes it’s less risk than shares and other investments.


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