Put a squeeze on the bankers


Published in the Daily Telegraph, February 2008 by Erica Thompson

The only way to beat the bank is to own it, or so the saying goes.

But if you're not Sir Richard Branson and have a lazy billion or four lying around to buy one, don't despair. You can still make money out of the banks in other ways.

Share the profits

If you would rather get a cheque from your bank than a new fee schedule consider investing in financial stocks.

Shares in Commonwealth Bank, which recently reported an interim net profit of $2.385 billion, climbed 252 per cent in the 10 years to September 2007. Westpac grew 228 per cent, ANZ 204 per cent and NAB 87 per cent. The banking sector has also historically paid some of the best dividends.

"And they're generally fully franked dividends, which makes them even better,'' says analyst Dale Gillham from Wealth Within.

"If you can pick up 6 per cent fully franked dividends, it's worth more like 8 or 9 per cent as a cash product.''

Greg Hoffman, analyst with The Intelligent Investor, says bank shares are an important part of a diversified portfolio.

"They're too big a portion of the economy to ignore.''

But he stresses - particularly in light of the hammering financial stocks have received on the back of global credit woes - there is risk involved investing in the sharemarket.

"While the conditions for the banks in the past 15 years have been very good, the future may look quite different to the past,'' Mr Hoffman says.

"Every now and then banks can go through periods when they get themselves into hot water and there is a chance we're heading into one of those periods.

"If the banks get hit with some big bad debts then those dividends could be at risk.''

Mr Gillham agrees anyone investing in financial stocks now should "expect (the share price) could be lower in the next few months''.

"But if your outlook is long term you will make money. (The share) will grow in capital and you will get a good dividend yield.''

Buy the bank

Or at least the building or office space the bank operates in. Apart from perhaps the defence forces, banks make good tenants and the branches tend to be in prime locations.

But Peter Affleck, Suncorp's executive general manager real estate, says the main appeal lies in the security of having a blue chip occupant and longer term lease arrangements.

For instance, one BankSA (a division of St George) branch put up for lease in Adelaide last year has occupied the site for almost 100 years. Suncorp leases all 164 of its branches and Mr Affleck says investors keen on becoming a bank landlord should simply register their interest with real estate agents.

Also keep your eyes peeled for special offers. BankSA recently announced the sale and leaseback of a further 13 branches in South Australia to free up capital for growth.

The branches come with secure leases, most for seven years and with an opportunity to renew the lease for a further 15 years. Rents range from $16,575 to $209,300. The bank earlier sold 14 properties, which it says were snapped up largely by self-managed superannuation funds.

Take more interest

Fierce competition in the online savings market - triggered by the arrival of international players such as ING, BankWest and Rabobank - has meant banks have had to lift their game.

Some are offering almost twice the rate of interest they were a decade ago - as high as 7.5 per cent.

According to Rabobank's online calculator, if you start with $5000 and contribute $100 a fortnight in a 7.5 per cent account that calculates interest daily and pays monthly you will have earned roughly $211 in interest in six months.

Infochoice general manager Denis Orrock says with these offers it no longer makes sense to leave your spare funds in a low-interest-bearing account.

"It really challenges the thinking of (investing) in other financial products. Even if you get a slightly lower return, it's without the risk,'' Mr Orrock says.

"Online savings accounts give you somewhere to park your cash at call and get a good return and you can be confident that your cash is going to be there.''

Just look out for the fine print

"You need to be aware that some accounts have restrictions such as if you don't make a deposit or if you make withdrawals in a month you won't earn any interest.''

Most advertised rates also tend to be introductory rates that are only valid for a limited period of time - usually six or 12 months. But there is nothing stopping you from switching to another lender once the special offer runs out. With so many accounts to choose from make the banks work for you.


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