6.51% return is pretty good today right?

[Julia]

Julia the stock market is all about capitol risk...that's what is at the heart of the market, that risk has to be managed and i don't think keeping your money in the bank is a valid stock market risk minimization strategy.

We will have to disagree about the most appropriate risk minimisation strategy.
To me a risk minimisation strategy is not represented by a very substantial loss of capital, irrespective of yield which - in the case under discussion - goes nowhere near making up for that loss of capital.

 

[So_Cynical]

Just of the top of my head...and straight outa my portfolio.

• IMFG yielding around 9%
• APN 9.1%
• CFX 7%
• ALZ 7.4%

Wow, all those have fallen fairly significantly. I can't see how getting into those would be equal to or better than Ubank at 6.51%.

ill put them in a portfolio and we will see how they perform against your 6.5%

Done...this should be interesting.
~

 

[Intrinsic Value]

Agreed, I just think there is more bad news to come. US is not going to recover, and we are still waiting for the inevitable crash in the Chinese fixed asset market.

Yes but even if there is a crisis or GFC mark 2 the market will eventually bounce back.

The trick is and i now i am repeating myself here is to buy good businesses when they are very cheap.

If you are absolutely convinced there is a catastrophe looming you would actually go and get your money out and bury it in the backyard because it sure wont be safe in any financial institution if there is a cataclysmic world financial meltdown.

 

[Muschu]

We will have to disagree about the most appropriate risk minimisation strategy.
To me a risk minimisation strategy is not represented by a very substantial loss of capital, irrespective of yield which - in the case under discussion - goes nowhere near making up for that loss of capital.

As always it is fine to disagree. Factors of age [I'm a mere 66], risk profile, assets and previous experiences are just a few of the "mix".

I do consider that at some point or age I will be likely to move into the "high yield - don't watch the market" phase. Yields plus franking credits should cover nursing home costs -- unless the market plummets and stays there throughout my lifetime..

 

[Tightwad]

The higher interest rate with UBank is just to compensate you for the slow online banking you get with this account.

 

[tothemax6]

I'm not sure I understand the bolded part, care to explain?

As I am sure you are aware, money is worth less each year. I would have a rough guess that this 'inflation rate' is about 5% (not 3% as they try to claim, stuff I buy like food etc is definitely not 3% more expensive than last year). And of course, you get taxed on your interest, so I would make a rough guess and say you actually get about 5% return after tax.
5% interest - 5% inflation = 0% real return. If it were 1% interest (like say, in US or UK), you would be losing 4% a year by holding cash. Hence, since Australia's interest rate is higher than inflation, the purchasing power of your money is protected.

Wow, all those have fallen fairly significantly. I can't see how getting into those would be equal to or better than Ubank at 6.51%.

Perhaps one should look at corporate bonds (there is a 'hybrid securities' thread). Some have a ~10% interest rate, albeit with more risk (no gov guarantee, no guarantee the company will stay afloat etc). One could argue that these sit between shares and bank accounts on the risk/return scale. (Don't hold, DYOR etc)

 

[Tyler Durden]

As I am sure you are aware, money is worth less each year. I would have a rough guess that this 'inflation rate' is about 5% (not 3% as they try to claim, stuff I buy like food etc is definitely not 3% more expensive than last year). And of course, you get taxed on your interest, so I would make a rough guess and say you actually get about 5% return after tax.
5% interest - 5% inflation = 0% real return. If it were 1% interest (like say, in US or UK), you would be losing 4% a year by holding cash. Hence, since Australia's interest rate is higher than inflation, the purchasing power of your money is protected.

Perhaps one should look at corporate bonds (there is a 'hybrid securities' thread). Some have a ~10% interest rate, albeit with more risk (no gov guarantee, no guarantee the company will stay afloat etc). One could argue that these sit between shares and bank accounts on the risk/return scale. (Don't hold, DYOR etc)

Many thanks

 

[Starcraftmazter]

No guarantee of them rising in value. In the present and probably forthcoming global mess, they're more likely to fall in value, unless you have the skills to avoid this.
(viz Warwick McKibbin's remarks about the slowly unfolding train wreck.)

There's a lot to be said, imo, for the peace of mind cash offers in uncertain times.

Fortunately we have derivatives for those sorts of predictions

There will ALWAYS be uncertain times.
Adversity begets OPPORTUNITY.
Seriously everyone MUST LEARN how to control RISK if supplementing or growing your wealth is to occur.

Mediocrity will breed mediocre result.
Over 70 % of the world population is living in poverty and of the rest 97 % live in mediocrity.

Of those above very few have the OPORTUNITY you and I have---- we live in a developed country. What a tragedy in ones life to settle for mediocrity and not take advantage of opportunity when we HAVE the chances few could even dream of!!!!!

Don't let this life slide by

This is pretty inspiring mate, I salute you!

I'm not sure I understand the bolded part, care to explain?

Let's say you have $1000 invested, and get $651 in bank interest. You lose $333 of that straight away (currently) - that is to say, your investment has lost that much of it's purchasing power in that last year because of inflation, so that should not be counted as an actual return, and if you wanted to spend your returns for instance, you would need to reinvest that portion at least to maintain the value of your investment. And this is just inflation, CPI is higher (ie. rising cost of food and energy), and housing in Australia is just crazy.

But after that there is another $300 or $450 in tax (depending on your tax rate). So what is left is likely to be less than $100 of actual returns - depending on your tax bracket.


Overall, in my view, if you want to even maintain the value of your money in real terms, it will take a reasonable significant amount of effort in the stockmarket.

 

[Tyler Durden]

It can actually be quite scary when one thinks about it. It seems that merely to 'keep' your own money at the same 'level', 6.51% is barely (or perhaps not) enough. Hence to actually go beyond this, one needs to risk his or her own money.

 

[Starcraftmazter]

It can actually be quite scary when one thinks about it. It seems that merely to 'keep' your own money at the same 'level', 6.51% is barely (or perhaps not) enough. Hence to actually go beyond this, one needs to risk his or her own money.

Couldn't agree more, such is the curse of economic systems producing inflation, and the taxing of directly (and indirectly) putting money in productive parts of the economy instead of buying imported goods.

Pretty ridiculous, but what's even worse is that most people don't understand this.

 

[addison]

Isn't that rate only if you set up a regular savings plan ($200/mth), otherwise it defaults to 6.01%? In which case you can do better. It's right there on Ubank's website. Not being critical, just trying to help.

yes, thats correct, ive got some cash in ubank im just sitting on atm and about to use some more to buy a car soon, so for this the interests really good, but as a useful account it has limitations, you cant use paypal or bpay and transfers are not instant

 

[tothemax6]

so for this the interests really good, but as a useful account it has limitations, you cant use paypal or bpay and transfers are not instant

I guess they kind of have to do this, to make the account more 'savings-like'. If it was used more or less as a chequing account then they wouldn't be able to extend as much credit, and hence they would be unable to offer a higher interest rate.

Which begs the question, why is it that UBank offers this rate on an account that can be withdrawn on demand, at 6.5%, and yet 6m term deposits are at lower rates? Anyone have any insight into this?

 

[Starcraftmazter]

Which begs the question, why is it that UBank offers this rate on an account that can be withdrawn on demand, at 6.5%, and yet 6m term deposits are at lower rates? Anyone have any insight into this?

Marketing - a way to get customers to join the bank, you also need to deposit at least $200 a month. They are probably betting on most people using this product to actually save money and not take it out.

 

[Julia]

I guess they kind of have to do this, to make the account more 'savings-like'. If it was used more or less as a chequing account then they wouldn't be able to extend as much credit, and hence they would be unable to offer a higher interest rate.

Which begs the question, why is it that UBank offers this rate on an account that can be withdrawn on demand, at 6.5%, and yet 6m term deposits are at lower rates? Anyone have any insight into this?

Banks offer various 'specials' according to their needs for funding which will vary.
At call rates are usually only offered for a few months at a time, so the bank is not committed to paying X% if soon after offering this they are able to source their funds at a cheaper rate.
In contrast if they commit to a longer term deposit period, they're bound by this and thus limited in terms of their own flexibility.

Also, the high at call rate, as has been suggested, is to attract new customers on the assumption that most people are lazy and apathetic and will forget when the offer period has concluded that those invested funds have then dropped back to around the cash rate.

The same principle applies with term deposits. At the end of the term the bank just rolls the TD over, probably hoping you won't notice that the interest is now way less than it was!

It's not hard to maintain awareness of what are the best at call offers around and just move your money accordingly.