Saving pays off

Published in the Herald Sun, March 2012 by Karina Barrymore 

Savers are the winners in the bank funding wars as interest paid on cash savings continues to outstrip returns from the share market. 

Banks have lifted term deposit rates to lure funds from within Australia rather than overseas, and depositors are reaping the rewards.

According to an analysis of term deposits and share market performance, cash has produced greater returns recently. However, good times for cash investors and depositors may be short-lived. 

As money flows out of the volatile share market, banks are expected to reduce interest rates while more risk-shy investors jump to the term-deposit safe haven.
"For (now) ... term deposits are pretty compelling," UBS Wealth Management head of investments George Boubouras said. 

"They offer great value for retail investors. If you're a retail investor with savings it's an opportunity to get a good return. However, we expect a higher return over the long run from equities.

"We expect funding costs to be lower and we expect credit growth to pick up. That combination would imply, in the years ahead that term deposit rates will move closer to the cash rate." 

Chief executive of interest-rate analyst Rate-City, Damian Smith, said deposit rates were starting to fall.

"Almost all deposit products, including term deposits and at-call savings, have seen falling interest rates for the past several months," Mr Smith said. 

"Institutions haven't had to pay as high rates to attract business because they've seen unprecedented growth when many Australians took money out of volatile investments, such as property and the share market, and moved them in to low-risk investments such as term deposits and savings accounts."

Dale Gillham, analyst at fund manager Wealth Within, said he expected the share market to out-perform cash. 

"In the next five years the share market will do exceptionally well, though not especially so for the next six months. But you don't look for the best investment vehicle today you look for the best (one) ... of tomorrow.

"Cash may be great ... it's secure, but in the next five years it will be left behind."