Where To Bank On A Decent Return
Sun Herald
Sunday September 3, 2006
IF you were searching for income 10 years ago, you couldn't go far past bank stocks. The dividend yield on NAB and ANZ was 5.5 per cent, on St George it was 7 per cent and on the Commonwealth Bank it was an impressive 8 per cent.
This compared with an official cash rate at the time of 7 per cent. Of course, you couldn't earn anything like that if you stuck your cash in the bank rather than on the bank. In those dark days before high-interest online savings accounts, a paltry few per cent was the best you could expect on any savings account. And term deposits were only slightly better.Fast-forward 10 years and the situation has turned on its head. Thanks to phenomenal share price growth, banks are yielding a meagre 4.5 per cent. CBA is marginally the highest, at nearly 5 per cent. ANZ is the lowest at a little above 4 per cent. This compares with a cash rate of 6 per cent - but it is now possible to earn more even than this within an online savings account.Topping the table is the TeleNet Saver account from BankWest. Paying 6.6 per cent for the first year, it drops to 6 per cent after that.AMP's eASYSAVER also offers a higher initial interest rate. It pays 6.3 per cent for the first six months and 5.55 per cent beyond that.With either account, there is nothing to stop you sticking around only long enough to receive the introductory rate, then taking your money elsewhere. Indeed, you could first sign up with BankWest for 12 months, then AMP for six months, then open an account that has a consistently competitive rate.One option at that point is HSBC's Serious Saver, which pays 6.2 per cent. However, you earn this rate only in months in which you do not make a withdrawal.Westpac One pays a higher rate if you make no withdrawals and deposit money - 6.05 per cent. This is actually a savings account that runs alongside a transaction account that costs $5 a month.The incentive nature of the interest on these accounts might make a nice deterrent if you're likely to be tempted to dip into your funds.But for those who need frequent access to their savings, the Bank of Queensland's WebSavings Account (5.95 per cent) or Suncorp's Everyday Options sub account (5.9 per cent), which, like Westpac One, is a savings account linked to a $5-a-month transaction account, are worth considering.What of online savings pioneer ING? It comes in just below with 5.85 per cent.But if you have money to park, you can do better than an online savings account - by putting it into an offset account linked to your mortgage. Any cash you have sitting in such an account is "offset" against your mortgage, so you pay no interest on that amount. And because you are saving rather than earning interest as you would with an online account, you pay no tax.A tax-free effective return of 7.8 per cent - the average standard variable rate - is very tidy indeed.Particularly when you take no investment risk to get it. If you would like to appear in Investor Overhaul and receive free financial advice, email investor@fairfax.com.au. You would need to be willing to have your financial details and a photo published.
© 2006 Sun Herald