Paul Clitheroe
Paul Clitheroe

Seeking higher returns amid low interest rates

LOW interest rates are great news for those of us with a mortgage.

But for anyone relying on cash-based investments like term deposits, the Reserve Bank's latest cut to the official cash rate means your savings will earn even less.

One solution is to consider diversifying into higher risk assets like shares, though with a bit of shopping around it may be possible to boost returns on cash savings.

In today's low rate environment it's more important than ever to be sure you're earning a decent return. However a recent report by RAMS highlights that many Australians fail to keep tabs on the rate their money is earning.

According to the study, around 80 per cent of savers haven't checked the rate their cash is earning in the past twelve months. Amazingly, four out of ten haven't changed their main savings account in the last decade.

If that sounds like you, it's definitely time to get cracking. Find out what your savings are earning and take a look at websites like Canstar to see if you could get a better rate.

If you have kids with a junior savings account, one product that may be worth a look is the newly launched Youth eSaver from Credit Union Australia (CUA).  Designed specifically for 10 - 17 year olds, it lets kids earn 5.05% on the first $5,000 with no strings attached.

If you are looking for higher returns, be extremely wary of the tax-based investments that are often heavily promoted at this time of year.

Tax-based investments come in all shapes and sizes from so called mortgage management schemes through to agribusiness investments like tea tree plantations. The common thread is the promise of high returns coupled with significant upfront tax savings.

Some of these investments providing tax benefits are legitimately intended and might work out - though the historical failure rate is high. Others are little more than a chance for conmen to rip you off from the outset, and it can be very difficult for ordinary investors to tell between the two. The trouble is, if you invest in a dodgy scheme you don't just face the risk of losing your money - as many investors have, you could also cop a bill for unpaid tax plus late payment penalties.

The tax office has plenty of information available regarding tax driven investments including a booklet entitled "Understanding Tax Effective Investments", which can be downloaded from the ATO website at

I reckon a far better tax-friendly investment is quality Australian shares. Dividend payments often have franking credits attached, which means you get credit for the company tax paid on the profits the dividends were paid from. In addition if you hold onto the shares for over 12 months you only pay capital gains tax on half the profit made when you sell the shares.

The bottom line with any investment is that higher returns go hand in hand with higher risk. Your savings account is very safe though the trade off is low returns. Your financial planner can offer tailored advice on the types of investments that have the potential for healthy returns while helping you meet personal goals.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.

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