Investors take note: term deposits are the new black

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With the slowdown of activity by investors, RateCity investigates how term deposits are heating up for the cashed up.

July 9, 2010

Many investors enter the property market because it can be straight forward and less unpredictable than other investments like shares. However, RateCity has noticed a trend of investors easing away from the mortgage market.

According to the April Housing Finance, Australia report from the Australian Bureau of Statistics (ABS), there was a slowdown of investors taking up investment loans in April compared to the higher value of investor loans at the start of the year.

The report recorded in April there was $297.3 billion worth of investor loans written compared to $295.9 billion in March. Although this was $1.4 billion more than investor loans in April, investors have been pushing on the brakes since the start of the year. In February, the ABS recorded an increase of $3.5 billion worth of investor loans, of $292.5 billion compared to January ($289 billion).

This reduction in the value of investment loans is a result of two major reasons, firstly an increase of interest rates since the start of the year. In January the Reserve Bank of Australia (RBA) cash rate was 3.75 percent compared to today's rate at 4.50 percent. The average standard variable rate for investment loans in January was 6.28 percent, compared to today's rate of 7.08 percent.

Secondly, the European economic crisis and the increase in house prices have caused lending and the property markets to become unstable and unaffordable. Until both the international and Australian economies stabilise and the housing bubble deflates investors are left with no choice but to withdraw or hold off from investing in the housing market.

Term deposits are a safer option
One option for investors who are holding off investing their time and money into the housing market is to look at investing their money into a term deposit and grow their money while they wait. Investors should consider investing their money into a term deposit as not only are they a much safer option than the property market but they are a more assured return on investment.

For instance if you deposit $100,000 into a six-month term deposit you can receive a rate of 6.31 percent (current advertised rate with RaboDirect, as at July 6, 2010) you can earn more than $3100 worth of interest bringing your total balance to more than $103,100.

You can then use your new-found wealth to invest in the housing market when the market becomes more affordable and you feel it is the right time, knowing that you have done all that you can in the interim.


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