Interest rates - why bother?

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Forums › Finance and wealth management › Interest rates - why bother?

linw

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#274539 27-Aug-2020 18:57

Second notification within 6 weeks or so.

"RaboSaver
The rate will be reducing from 0.50% p.a. to 0.35% p.a. *

PremiumSaver
The premium rate will be reducing from 1.00% p.a. to 0.75% p.a.**"

And take inflation off...

Only good bit is the tiny tax to pay!

Very few options when my age!!

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#2550886 27-Aug-2020 19:04

Stick it in a conservative managed fund with low fees e.g. https://simplicity.kiwi/investment-funds/home/

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michaelmurfy

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#2550916 27-Aug-2020 19:21

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mentalinc

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#2550940 27-Aug-2020 19:49

Try lay off the investment advice to higher risk options when they note age as a concern!

Stick with the investment advice from someone is is certified to provide information based on your individual circumstances!

But as a rant 100% agree. I remember the 8%+ only 12 years or so ago now. If you told me in 12 years time it back then they would be below .5% i'd have had you committed no doubt!

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Handle9

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#2550941 27-Aug-2020 19:56

mentalinc:

Try lay off the investment advice to higher risk options when they note age as a concern!

Stick with the investment advice from someone is is certified to provide information based on your individual circumstances!

But as a rant 100% agree. I remember the 8%+ only 12 years or so ago now. If you told me in 12 years time it back then they would be below .5% i'd have had you committed no doubt!

I tend to agree. We are in a contracting economy so investing for the next few years is a delicate position. Shares and property could go up, or down, really depending on the COVID situation.

In the medium term good quality assets should do quite well but if you are in asset preservation mode get some professional advice (preferably from more than one source), especially if you will need to access the investment in the next few years.

sbiddle

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#2550955 27-Aug-2020 20:37

Any managed fund carries risk. Markets don't only go up, they also go down.

It's unfortunate now that any smart person should be keeping at least some cash in the bank, and that cash effectively is negative earning with inflation far in excess of the return you can get.

linw

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#2550964 27-Aug-2020 20:57

Thanks, all, but not really looking for advice. More a social commentary from someone who can remember interest rates of 20+😀

Those relishing low mortgage rates never seem to think about the other side of the equation.

Oh, well, difficult times for us all.

Earbanean

724 posts

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#2550970 27-Aug-2020 21:13

sbiddle:
Any managed fund carries risk. Markets don't only go up, they also go down.

It's unfortunate now that any smart person should be keeping at least some cash in the bank, and that cash effectively is negative earning with inflation far in excess of the return you can get.

Not necessarily true. Inflation will be going pretty low as well - even negative. Break even yields on inflation indexed NZD bonds are still positive. So, your cost of living will not be increasing while your savings are flat. Although, obviously there's unders and overs within a broad index like CPI, so the real world costs of any individual may be rising more than their savings.

Edit: typo

mattwnz

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#2550977 27-Aug-2020 21:33

Yes it is terrible, especially for older people who relied on the interest to top up their super. Some of these are likely the same people who lost money in the last financial crisis when finance companies fell like domino's.

My concern is we have these low rates, and yet we are also one of the only countries in the OECD where our deposits in banks aren't government guaranteed.

mudguard

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#2551054 28-Aug-2020 07:10

mattwnz:
Yes it is terrible, especially for older people who relied on the interest to top up their super. Some of these are likely the same people who lost money in the last financial crisis when finance companies fell like domino's.

My concern is we have these low rates, and yet we are also one of the only countries in the OECD where our deposits in banks aren't taxpayer guaranteed.

I fixed that bit for you.

robjg63

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#2551070 28-Aug-2020 08:13

mattwnz:

Yes it is terrible, especially for older people who relied on the interest to top up their super. Some of these are likely the same people who lost money in the last financial crisis when finance companies fell like domino's.

My concern is we have these low rates, and yet we are also one of the only countries in the OECD where our deposits in banks aren't government guaranteed.

Getting to that point in life and yes its a concern.

Also a concern that mega low mortgage rates will crank up the house prices even further - how can it do anything else but let people shovel more money at a shortage of housing supply? Even more of a concern will be when (at some stage) the rates climb back up even a little, how many will not be able to pay their mortgages.

I am not seeing the brilliance of zero interest rates...

Nothing is impossible for the man who doesn't have to do it himself - A. H. Weiler

OldGeek

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#2551162 28-Aug-2020 10:19

The current situation with low interest rates on bank accounts means we all need to rethink what we use our bank accounts for. In the past we considered a bank account as a form of transactional processing (i.e. receiving and spending income in a cheque account) and a way of parking unspent income (in savings account). The situation now is that a savings account is a short-term option. The savings account balance loses value over time because of inflation exceeding the interest rate. Its only use now is to park funds pending a final decision in where to invest (assuming that will involve a non-bank-account destination).

There are a lot of investment options available but they all involve risk levels and restricted ability to get the funds invested back for spending. None of this applies to savings accounts. People simply need to get their heads around the effort required to find the options, understand the risk and understand the impact on their ability to withdraw and spend such funds. I can understand older people being bewildered at this turn of events but assistance should be available from family if nothing else. I am an older citizen but always keen to embrace change forced on me.

The availability of Internet communication has hugely impacted our ability to do all this. Whatever the myriad of options available they are all on the internet and can be researched without external assistance (or optionally with it). Your investments can be monitored as frequently as you choose.

This all revolves around getting used to the fact that only some of your money is in a bank account.

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Oblivian

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#2551176 28-Aug-2020 10:31

Same boat. For years I had the 8%. And lived off the interest alone. CC was paid in full each month, and the interest took care of it.

Now.... $3.85/month on a 60K 'saver' account. That they take $1.20 RWT from.

You got a good deal. Mine are on .05 (serious saver really needs to be renamed!!!) and .40 bonus. (so .45)

While the 'online' ala use it online and no desk fees.. standard .05

I've been eyeing up the only options. Offload on a rental that I may end up needing to live in. Or figure how much to stash in a 10-15yr managed to at least get it back to about a 4% positive interest.

Fred99

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#2551188 28-Aug-2020 10:47

Earbanean:
sbiddle:

Any managed fund carries risk. Markets don't only go up, they also go down.

It's unfortunate now that any smart person should be keeping at least some cash in the bank, and that cash effectively is negative earning with inflation far in excess of the return you can get.

Not necessarily true. Inflation will be going pretty low as well - even negative. Break even yields on inflation indexed NZD bonds are still positive. So, your cost of living will not be increasing while your savings are flat. Although, obviously there's unders and overs within a broad index like CPI, so the real world costs of any individual may be rising more than their savings. Edit: typo

Yes - but asset price inflation isn't under control, people are panicking and spending cash (or worse - borrowing to spend cash) on what may or may not prove to be bubbles.

Trying to beat the market is a gamble. This pandemic has weird consequences that might have been able to be anticipated. For example I understand that the used car market in the US is very buoyant. One explanation is that people are buying cars with cash from stimulus cheques, another is that people don't want to use public transport. Suburban real estate also reportedly booming, but is that low interest rates or people not wanting to live in densely populated cities, or people wanting to upsize so they can have an office, anticipating WFH as the future?

Earbanean

724 posts

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#2551196 28-Aug-2020 10:57

OldGeek: The savings account balance loses value over time because of inflation exceeding the interest rate.

That isn't actually technically correct at the moment. While the latest annual inflation, to the June quarter, was +1.5%, it's a lagging indicator mostly pre-COVD. Recently inflation has dived. The quarterly inflation for the June quarter was -0.5%. i.e. CPI has gone down. So savings interest rates are actually exceeding recent inflation.

However, as I said before, CPI is a broad measure. A lot of the fall was from fuel, but food costs were up. So if you happen to have no fuel costs, but a lot of food costs, you don't see the benefit of the negative inflation. So savers in that situation do get hurt and that's a problem.

https://www.stats.govt.nz/information-releases/consumers-price-index-june-2020-quarter

OldGeek

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#2551245 28-Aug-2020 12:38

While the CPI for June 2020 quarter is -0.5%, the CPI for July 2019 to June 2020 is +1.5 (being +2.0 for the first 3 quarters and -0.5 for the last). This is a year in which we had a COVID 19 Level 4 lockdown. So savings account interest of +1% did go backwards and the gap will worsen as the CPI is not affected by negative quarters.

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