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Speakers of the calibre of David Knoff, the expedition leader stranded with his team in Antarctic during COVID, can regularly be heard at this global institution that places a premium on knowledge, not qualifications.
Higher interest rates could deliver retirees a Christmas bonus
Retirees with cash holdings might just be getting an early Christmas present – the odds are shortening on the Reserve Bank lifting interest rates again. At the very least, there’s little suggestion they are about to fall.
Although that won’t please the millions of Australians with home mortgages, it will bring a smile to those retirees who endured their cash and term deposits virtually delivering nil returns when the cash rate was below one per cent for nearly three years from October 2019 until June 2022 when it was set at 1.35 per cent.
Remember, too, the cash rate was at 0.10 per cent from November 2020 to May 2022 when it was raised 25 basis points to 0.35 per cent.
Non-bank lender Capspace managing director Tim Keith predicts interest rates to remain unchanged in the months ahead (it is currently 4.35 per cent) with the possibility of one more rate rise.
Keith said: “A tight labour market is keeping upward pressure on wage costs and inflation that will favour returns on cash deposits and some fixed income investments with floating coupons.
“The strong employment numbers – the latest Australian Bureau of Statistics data had unemployment at four per cent – will keep pressure on the Reserve Bank of Australia (RBA) to maintain rates where they are. Along with stubbornly high inflation, the RBA will not be lowering rates soon, with more risk to the upside than the downside,” he said.
Atchison Consultants research and investment analyst Mishan Dahia (pictured) said the markets were pricing in a 20 per cent chance of an additional rate hike this year, but whether that rise occurred or not, term deposits were still offering solid returns at current levels.
For example, the Commonwealth Bank is offering 3.45 per cent for three-month term deposits from $5,000 to $49,999 and 3.5 per cent for the same duration for deposits between $50,000 to $1,999,999. For six months and the same deposit ranges, the rate rises to 3.7 per cent and 3.75 per cent, respectively, and for 12 months and both deposit ranges, to 4.6 per cent. It’s a similar story with the other major banks.
Certainly, cash and terms deposits, which come with the reassuring Financial Claims Scheme deposit protection scheme for sums up to $250,000 per account holder, are back in favour.
For retirees now enjoying stronger returns it’s perhaps more a question of what percentage of their assets to have in cash and term deposits.
Dahia said: “It depends on retirees’ plans for this cash. If large repayments on property are necessary, having extra cash in an offset account is sensible to reduce interest costs. Cash offers liquidity, flexibility, and peace of mind for unexpected expenses, while term deposits provide higher interest rates (capital growth) but involve locking up cash for a set period. Balancing between liquidity and higher returns is based on individual financial needs and goals.
“A financial adviser should consider their clients’ overall asset mix, liquidity needs and debt obligations and make their recommendations accordingly.”
He adds that for those retirees looking for higher returns, private credit is an option.
“Like all investments, private credit can be a good addition to your existing portfolio, depending on your current exposure, risk tolerance, financial objectives, timeline for investment.
“At Atchison, we hold modest private credit exposure in our separately managed accounts. But it’s critical to stress that not all private credit is equal, meaning retirees need to do their due diligence when seeking exposure to this market segment.”
Keith said the potential for another official rate rise in August meant returns on cash and term deposits and floating-rate income investments such as private credit could increase over the next 12 months.
“Floating rate investments, including corporate loans made by private credit funds, offer an interest rate that is linked to variable interest rates, so returns on private credit funds will generally increase in a rising rate environment.
“For income-seeking retirees willing to take on more risk than that involved with cash or term deposits, private credit investments can deliver investors yields close to 10 per cent a year, almost double typical yields on cash and on rental properties that often fall below five per cent.”
