Is cash making a comeback?

Discussion in 'Other Asset Classes' started by FredBear, 13th Apr, 2022.

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  1. FredBear

    FredBear Well-Known Member

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    There's been lots of discussion, both on this forum and elsewhere, about interest rates increasing and how this will affect those who have borrowed. However, there has not been so much discussion about interest on cash deposits.

    This gives a good indication on how the market is expecting interest rates to develop:

    http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

    Basically, we are siting on .1% now, and this will increase to roughly 2% at the end of the year and 3% mid next year.

    Right now the 3 best offerings for high interest savings are:

    AMP Bank: 1.45% (if you have a super account, and deposit 250 per month)
    86400: 1.2% (if you deposit $200 per month)
    Macquarie: .95% (no deposit needed)

    So at the end of the year the rates could look like this, by adding in the increase:
    AMP: 1.45+1.9= 3.35%
    86400: 1.2+1.9= 3.1%
    Macquarie: .95+1.9 = 2.85%

    Mid next year:
    AMP: 1.45+2.9= 4.35%
    86400: 1.2+2.9= 4.1%
    Macquarie: .95+2.9 = 3.85%

    So how does this affect your cash holdings? Will you be doing something different as a result? For me I won't be in such a hurry to move any spare cash to something else.

    I have elderly relatives that won't touch anything other than HISA or term deposits, so this is welcome news for them.
     
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  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Yup looking forward to some decent term deposit rates hopefully in the future!
     
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  3. Cousinit

    Cousinit Well-Known Member

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    Good point there Fred. I wouldn't be in a hurry to place a term deposit at AMP knowing all the shenanigans that have been going on there in more recent times though. I also know a few baby boomers (parents) who are big on having cash in term deposits for a range of reasons.
     
  4. tk421

    tk421 Well-Known Member

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    looking forward to getting some kind of return on them, how about the 18% days, far out, now thats what I call easy money!

    investing in asset bubbles to keep up with inflation seems like madness if you can get 5-8% in a bank
     
  5. paulF

    paulF Well-Known Member

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    Ver good point indeed and if i'm not mistaken, I think this can also affect people with big of savings in offset accounts where if the deposit rate might have better returns than their mortgage rates...
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Offsets will increasingly return higher gross benefits as rates rise. Deposit rates probably will not increase that much as rates rise.

    Recent data suggested offsets hold a vast amount of increased savings vs several years ago.
     
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  7. Cousinit

    Cousinit Well-Known Member

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    Why not?
     
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  8. Redom

    Redom Mortgage Broker Business Plus Member

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    Personally at a fairly aggressive point in our lives; cash isn't about earning a return income wise. 3% may swell be 0% - its to small to matter or move the needle. This perspective will change as our risk tolerance/age changes.

    Cash at this risk tolerance is all about having access to opportunity. For that reason, it may be making a return too, rising interest rates may present increased opportunities. Particularly in the markets we play in (property).

    As an investing strategy we've been fairly light on cash through this boom cycle, deploying as much as we could. The time for this has adjusted though and having cash on hand would be great for opportunities that may arise ahead.
     
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  9. FredBear

    FredBear Well-Known Member

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    Remember those days myself - I've kept a bank statement from January 1990, which shows that the interest rates I was getting on my Citibank cash management account were:

    $3,000 - $24,999: 15.25%
    $25,000 - $49,999: 16%
    $50,000+ : 17%

    Maybe I should frame this and put it on display :) Today the exact same account - I still have it - gets 0%.
     
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  10. FredBear

    FredBear Well-Known Member

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    I hope AMP Bank is OK - the banking business is separate, and most of the funds come from home mortgages, primarily from brokers. At least the first $250k is covered by the govt. guarantee. At least my experience of AMP bank has been positive so far.

    Which brings up another point: The govt guarantee is $250k per person per deposit taking institution. So for example NAB, NABTrade, Ubank, 86400 and now Citibank retail are all part of the same deposit taking institution, and the guarantee is $250k across all deposits in these, not $250k for each. So for large amounts of cash you start to run out of banks if you want it all to be covered by the govt. guarantee.
     
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  11. Jmillar

    Jmillar Well-Known Member

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    In my view, if inflation runs at 3-4% and you're getting 3-4% interest pa then you're not putting your money to good use. Your $100 that buys X bottles of milk today will turn into $103-104 next year which still buys the same amount of bottles of milk.

    Your returns need to outperform inflation otherwise you're going backwards.
     
  12. tk421

    tk421 Well-Known Member

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    what is the true inflation rate? seems like a mythical number to measure a return

    'true' inflation is off the charts imo, If people knew the actual inflation rate, it would implode the entire system.

    "
    This enormous loss of purchasing power is not reflected in the official measure of inflation, which claims inflation is subdued (1% or so annually).

    If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38 — up only 35% from 2001. Compare that to today’s actual cost of $6.50 — almost double what it “should cost” according to official inflation calculations."

    :D:D:eek:
     
  13. FredBear

    FredBear Well-Known Member

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    Yes that's true - also factor in that you are paying tax on the interest.

    The point is that cash is getting more attractive compared to the alternatives: are total returns on VAS/VGS/LICs or Sydney property going to go up 2 - 3% in the next 8 - 14 months?
     
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  14. Jmillar

    Jmillar Well-Known Member

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    Good point re paying tax on the interest!

    I'm interested to see what shares do. Companies are getting hit with a lot of labour shortages and supply chain issues which is increasing their cost base, and although they are increasing their prices I don't think it's to the same extent that their costs are increasing (yet). I guess it's industry dependent though so owning ETFs is a good way of reducing risk.
     
  15. hedgepigdaniel

    hedgepigdaniel New Member

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    Would you care to expand on these "shenanigans"?
     
  16. Cousinit

    Cousinit Well-Known Member

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    Not really!
    Have a read up of recent history surrounding AMP generally and make up your own mind.
     
  17. Squirrell

    Squirrell Well-Known Member

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    And dont forget tax. More like 102 to 103 returned.
     
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  18. JTF

    JTF Well-Known Member

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    Having a large position in cash right now and within the next 12-24 months is king.
    It's not as simple as, inflation goes up $X, cash goes down in purchasing power $X.

    Having cash burn at 5-6% per annum isn't ideal but it's the cost of having capital ready and on hand incase a stellar opportunity presents itself at a discounted price point.

    Houses in Sydney will likely fall 15% from peak to trough even with an inflationary environment which typically should benefit real assets. But the cost of debt/capital is ballooning with household balance sheets unable to keep up, therefore asset price reductions ensue. Also, REITs will come under pressure in the next few months, especially in the lead up to rate increases where fear settles into the market, keep an eye out for stellar opportunities there.

    Having that capital on hand to catch an opportunity at a 15% discount from present prices is critical.
     
  19. Properwin

    Properwin Well-Known Member

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    agree. I’m in the same position.
     
  20. FredBear

    FredBear Well-Known Member

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    Wow, UBank was quick with their interest rate update, this email came only 30 minutes after the RBA announcement today:

    You might have heard that The Reserve Bank of Australia announced today that it’ll be lifting the cash rate to 2.35%. So, we’re increasing our saving rates again, to help you continue to get ahead with money.



    From 1 October 2022, you can earn up to 3.35% p.a. on your Save account.



    We’ve made it easy for you…



    Simply deposit at least $200 per month into any of your Spend or Save accounts (not including internal transfers) and the bonus interest is yours. Seriously, that’s it.

    The new bonus rate is 3.25% p.a. and is paid on balances up to $250K per customer on top of the 0.10% p.a. base rate.



    Worried you might forget to deposit?



    We’ve got you covered! Enable your push notifications, and we’ll give you a nudge each month if you’re not on track to earn bonus interest.



    Happy savings!
    Team ubank
     
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