Best ‘Safe Haven’ Investments for Australians

High interest savings accounts offered by banks have been a hard sell in recent years with interest rates at historic lows. However, now that interest rates are on the march, the interest rate that savers can potentially earn is also increasing.

It is not impossible to receive a 4% rate on a high interest savings account, provided you meet certain conditions. For example, ING’s Saving Maximiser product requires savers to deposit $1000, make five card purchases a month, and grow the nominated savings balance in order to receive its top rate of 4.05% return. Of course, this rate is still lower than the rate of inflation in Australia, but a vast improvement on where savings rates used to be.

In general, high interest savings accounts apply eligibility criteria in order for borrowers to achieve the top rate. There may be a monthly fee, for example, a limit to how much you can receive interest on—up to $100,000 for example— and a certain number of monthly transactions that are required.

Before signing up, it’s worth checking how any charges stack up against the enhanced rate of interest. They are protected by the Australian Government’s Financial Claims Scheme, which protects deposists of up to $250,000 per Authorised Deposit-taking Institution (ADI), such as a bank, credit union or building society, in the unlikely event they fail.

Term deposits are another popular option for those seeking a fixed rate of return on their money, with very little risk.

A term deposit essentially allows you to earn interest on an allocated amount of money that you lock away for a period of time. For example: you may invest $50,000 of your money into a term deposit for 12 months, during which time you receive interest on the savings. This interest could be paid out monthly or at the end of the term, and the interest rate you earn will depend on which payment method you choose.

You can choose to access your locked away money before the term ends, but you will most likely face a penalty fee, reduced rate of interest or other charges that will be stipulated in the policy document.

When evaluating various term deposits, ASIC’s Moneysmart site recommends you look at:

• Interest rate—how it changes the more you invest, and when it is paid (monthly, annually or at maturity?)
• Time frame—how long can you invest for?
• Minimum amount you need to invest (usually around $5000).
• Fees, including account-keeping (ongoing) and penalty fees.

Investing in gold can provide stability and diversification to an investment portfolio—especially in times of economic turbulence.

Gold is perceived as a ‘safe haven’, offering investors the potential for wealth preservation. It has provided a good hedge against the headwinds of inflation.

This is because, in theory, increased demand during inflationary periods – such as the ones we are experiencing now, with prices in Australia increasing by around 7%—can result in a rise in the gold price.

Alongside cash, shares, bonds and property, gold is an asset that can provide investors with the all-important element of diversification. Diversification is useful, because it offers a form of financial protection when one asset class—shares for example—underperforms.

It is often said to have an inverse correlation to other asset classes. In other words, if stock markets are falling due economic uncertainty and rising inflation, gold may produce an enhanced return.

You can buy gold directly, in the form of bullion, coins, or jewellery. Alternatively, it is possible to gain exposure via an ETF fund or CFD investing in the futures market.

A third option is to invest indirectly by buying shares in companies that mine, refine and trade gold. Note that while the prices of mining company shares tend to correlate to the gold price, individual share prices are also affected by fundamentals such as profitability, environmental issues and geo-political and regulatory risks.

Exposure to gold is not risk-free. As with any asset class, the price of gold fluctuates and is subject to the usual laws of supply and demand, so you could lose on your original investment.

Bonds are a type of investment that tend to be more secure and less volatile than stocks and shares.

In terms of risk, think of them as a half-way house between having your cash in deposit and full-blown equity investing.

Bonds involve lending money to governments or companies in Australia in return for regular interest on that money after a certain period of time. Investors will also receive their money back when the bond reaches maturity. The companies or government—depending on which type of bond it is—will use this borrowed money to fund investment.

As ASIC explains on its Moneysmart site, broadly speaking, there are two types of bonds available to Australians:

• Corporate bonds: These are bonds issues by companies to fund projects. The minimum amount required to buy corporate bonds is typically up to $500,000. As ASIC warns, consider the credit risk of corporate bonds before you buy. “If the company goes out of business, you won’t get coupon payments and may not get your face value back,” ASIC notes. Beware too of emails offering corporate bonds as this is a popular hunting ground for scammers.
• Australian Government bonds: Also known as Treasury Bonds, these are bonds issued on sovereign debt by the Australian government and guarantee a rate of return if held to maturity. You may have also heard of ‘Semi Government Bonds’, or semis, which refer to semi-sovereign debt issued by the states and territories, and can be purchased through state and territory treasury corporations.

The interest rate you receive varies from one bond to another and depends on the type of bond interest rate. These include:

• Fixed rate bond: the interest rate is set when the bond is issued and does not change. This type of bond offer fixed coupon payments and a steady income stream.
• Floating rate bond: the coupon rate of return changes when the interest rate goes up or down over the term of the bond.
• Indexed bond: The interest rate is indexed against CPI, which helps protect investors against inflation as coupon payments increase in line with inflation.

Investing in property is not risk-free. But exposure to bricks and mortar can be placed in the ‘relatively safe’ investment pigeon-hole, especially if it’s for the long-term: we’re talking years or decades. Property also has the potential to produce an income stream in the form of rent, alongside the prospect of capital growth.

It’s possible to invest in property in a variety of ways, either directly or indirectly. The most obvious way is to buy a building and rent it out. Bear in mind that, on top of the purchase price and any associated mortgage, there will be extra fees (estate agents, solicitors, surveys, stamp duty, insurance, lettings agents) to find.

An alternative is to buy into a specialist property investment fund that focuses on retail, industrial and office buildings.

The performance of property funds usually depends on how the economy is performing. In good times, demand for property increases. This pushes up both rents and property prices and prompts extra construction. During slowdowns or recessions, the opposite tends to apply. At the moment, Australia’s property market is undergoing a downturnn.

As with any investment, the value of property investments and the income they provide can fall as well as rise.

Property also has the drawback of being a relatively ‘illiquid’ asset, that is, one that can be hard to sell. In extreme cases, investors can be locked into property portfolios while they wait for managers to sell off buildings.

Related: Forbes Advisor Australia’s Property Investment Guide

It’s worth repeating. There’s no such thing as a completely risk-free investment. Even so-called safe havens come with risks, for example, the loss of purchasing power over time as inflation rises —a hallmark of even the most cast-iron savings account.

The advice and information provided by ForbesAdvisor is general in nature and is not intended to replace independent financial advice. ForbesAdvisor encourages readers to seek expert advice in relation to their own financial decisions and investments.

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