How to overcome low interest rates and give your cash a boost

WHERE do you put your spare money in these times of ultra-low interest rates? Here are some easy tips to follow and boost your cash.

INTEREST rates paid on savings accounts are at record lows and don’t look like heading higher any time soon.

Reserve Bank data shows online savings accounts are paying 1.8 per cent and one-year term deposits 2.4 per cent — the lowest since its records started in 1981 — and economists expect rates to dip further this year.

However, there are ways to give your cash a little more oomph.

Goldsborough Financial Service director and adviser John Oliver says debt reduction is the number one priority if you owe money.

Mortgage offset accounts are an option, where your savings reduces the size of your home loan debt — meaning you pay less interest and more off the loan principal, and the money is still available for an emergency.

“Instead of getting 2 per cent in the bank, you are effectively getting a 5 per cent return if it reduces your mortgage,” Oliver says.

Savers should beware of any investment that promotes “secure” high-interest returns.

He says investing in growth assets such as shares and property can deliver higher incomes but also higher risk, as many shareholders have discovered so far this month.

“We have always known it’s better investing in a bank than with a bank.” Oliver says. Government bonds are an option but not generally a good one, offering low returns and carrying the risk of losing money if you invest in a bond fund and interest rates change.

Savers should beware of any investment that promotes “secure” high-interest returns.

“If there’s a promise of returns a fair bit higher than term deposit rates, it still comes with risk even though they say they guarantee your returns,” Oliver says.

RateCity spokeswoman Sally Tindall says offset accounts and redraw facilities are good ways to make your money work towards repaying your mortgage. Consumer debt such as higher-interest credit cards and car loans should be paid off first because the interest savings are larger.

“If you have a $30,000 car loan and repay it over five years at 8 per cent, putting an extra $100 a month onto the loan could save your $1127 interest and see you pay off the loan 10 months early,” Tindall says.

The most competitive savings rates are offered by the online banks.

She says putting extra money into superannuation is a good long-term savings option that saves tax, but your money is locked away until later in life.

The Federal Government’s proposed crowd-funding legislation - enabling investors to inject up to $10,000 directly into start-up companies - will deliver another investment avenue but it is as risky as speculative shares, Tindall says.

“Some of the most competitive rates are offered by the online banks, which with reduced overheads of a physical branch are able to pass those savings on to the customer in the form of higher rates.

ME Bank, ING Direct, RaboDirect and Ubank are some examples,” she says.