As we head into the long weekend, I doubt people will be thinking about the interest rate on their bank savings account.
But today I looked into the interest rate on my bank savings account and was surprised to find the rate of interest is a measly 1.65% p.a. (which includes the bonus rate). If we break down the real rate of return on this ‘Investment’ we find it to be much lower. Australia’s Central Bank official rate of inflation is sitting at 1.9%, which roughly indicates the real purchasing power of my savings is reduced by that same rate (1.65% less 1.9%), if we add the impact of tax payable on the interest the picture becomes really scary, another reduction of 0.61% on my advertised rate, bringing us to a real rate of return after tax and inflation of Negative 0.86% YES NEGATIVE!
Just so we understand the numbers, that’s over a 150% reduction in my return from the advertised rate of 1.65%.
What’s the message in this…Other than that I need to find a new bank?
It’s for those of us who see cash savings as an Investment, we need to consider the whole picture, and importantly understand the detrimental effect that a consistent negative return has on that ‘Investment.’
If you’d like more information on Cash and Investments, start a conversation with us today.
From the team at Steve May Financial Service, we wish you a happy and safe Easter long weekend.
Assumptions: Tax rate assumed to be mid tax rate of 37% including Medicare Levy.
This article is general in nature and is not intended to constitute advice.
Post by Luke Styles
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Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)