Where to put your money?

How to keep your money safe?  Not such an easy question these days. I’ve had some money piling up in a bank account for my company which runs Lateral Economics and Peach Financial and have just popped down to the bank to pay it from an account heavily in credit to a personal margin lending account. Turned out that the margin lending account is actually run by the same bank as the bank which ran the account from which the money came – though it was ‘rebadged’ in the name of a broker.  So I’ve managed to eliminate the counterparty and their margin.  Cheaper and safer – but for the extraordinary rigmarole one has to go through for the benefit of the ATO

But spare a thought for Tania whose name has been changed.  She’s just sold her house and her entire life savings are tied up in a bundle of cash until she buys again. Where does she put it?  She asked me.  I told her a few months ago that she could go to the RBA but in fact the pickings the RBA give you from their oversubscribed bond market are rather thin, with odd maturity times, and you get to fill out forms and pay brokerage every time your money matures. 

She asked me if BankWest on a Term Deposit was a good idea. The rate looked particularly good, and it was the right term so I said yes, but agreed with her that if she wanted to diversify further she should – by putting it into several banks.  She has. Anyway, now she’s worried.  I’ve told her that the chances of anything going seriously wrong are still very very small.  But it’s pretty outrageous don’t you think?  That a person who’s worked hard all her life, always played by the rules is forced, if she wants to earn any interest, to do what she thinks of as gambling with it in a bank. Makes me pretty annoyed that the Government doesn’t offer a means for its citizens to take safe possession of these exclusive units called dollars created for their scarcity value by the government as a monetary unit – along with some of those dollars’ earning power.

Anyway, I also mentioned to her that the money would probably be safer still in a cash management trust, providing that it really was a trust and not an account and that it invested only in Australian government paper.  I also thought that if she was prepared not to earn any interest at all, she could pay the money into her tax account and just leave it there, though it might be a hassle to get hold of it again – anyway it’s a lot better in there than under the bed.

I wanted to extend an invitation to fellow pontificators one and all to assess the quality of this advice and to improve upon it.

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A NON FARMER
13 years ago

I’d always had the idea that by this time in proceedings that everyone in a well adjusted Common-Wealth might have so many base-line credits to play with each week. This is about keeping the first application income tax threshold artificially high and feeding credits to individuals as invcome supplement if anyone falls below the mean.
This takes some thinking outside the accepted square.

Take, for instance the whole point of civilisation. Wasn’t it about supporting specialists in order to enrich our lives?
And by their efficiencies and resultant savings bringing the means of sustaining those less advantaged?

But what happened in the first village.
The old joke about the first priest, the first prostitute, both closely followed by the first lawyer taking payment to settle their differences is about right. So when did the first banker arrive?
Well, to look after the ill-gotten gains of the first three.
How about the other specialists?

Do they have rights?
Farmers, hunters, gatherers, mothers, fathers, children?
No. Not particularly, since those original ‘professionals, variously with heaps of spare time and ready income took over the show.

Take a deep breath, lie down for a few minutes, and reflect.
Why is it that those who contribute nothing to society other than telling the majority what they should be doing – why is it that they have been eternally calling the shots??

Patrick
Patrick
13 years ago

The ATO would give it back.

Jonno
Jonno
13 years ago

I presume it’s not a problem but Bankwest is owned by HBOS which I understand is rather in trouble in the UK – it’s a linked world.

keri
13 years ago

A term deposit with an
Authorised Deposit taking Institution would be fairly safe, as all ADI’s have to have liquidity provisions for deposits versus non-cash assets and loans which are monitored fairly strictly by APRA. After the collapses in the eighties, regulation was tightened up. There’s also further safeguards in the form of bad-debt provisions. I’d make sure the ADI didn’t do off-balance sheet lending in the current climate and go with that.

And right now i’d be wary of anything Macquarie related, as they’d be most at risk, and some of the safeguards don’t apply.

Ingolf
13 years ago

Nicholas, the RBA’s bond facility for small investors is actually pretty straightforward. They offer one maturity for each year (the nearest is Sept 09), the bid/offer spread is very reasonable (about 0.10% for the 09/09s) and the current yield is about 5.5%. The bonds can be sold at any time before maturity.

All the info can be found here.

Sinclair Davidson
13 years ago

it might be a hassle to get them to do it.

Not really. Why not just submit a tax return? The ATO will pay out soon after that. Anyway, I don’t see why the ATO shouldn’t pay interest on deposits or excess tax collection. That would give them and the government an incentive to fine-tune the PAYG system so as to not collect excess taxation and also provide a safe haven for cash during periods of financial turbulence and could be a mechanism for individuals lending to government (not really necessary at the moment with the government hoarding surpluses) if they really wanted to.

observa
observa
13 years ago

“Shes just sold her house and her entire life savings are tied up in a bundle of cash until she buys again. Where does she put it? ”
So basically she doesn’t know when she’ll need it to settle on another house nor how much. That means at call and safe in troubled times. Essentially the banks via that implicit guarantee. All the Big4 have a facility like my Westpac e-saver account currently paying 6.8% on daily balance payable monthly. It can only be operated on electronically and associated with another savings account (I have a Westpac Choice account which has no fees if you keep a minm monthly balance of $3000 in it) Use a credit card for day to day expenditure with interest free period. You sweep money in and out of the E-saver to the savings account with a mouse click 24 hours a day and maximise interest earning funds. If she’s really nervous set up more such accounts with all the Big$, but there is that $3000 minm in each associated savings account to consider. Hardly worth it.

observa
observa
13 years ago

You need the associated savings account to do normal internet banking eg Bpay and transfers and other payments ATM card, etc. The E-saver is just an electronic jam jar associated with that to earn you interest. You don’t get any printed statements but can print them yourself for your records. You can even have a joint savings account and 2 separate e-saver jam jars attached in each individual name to apportion funds and interest for tax planning purposes. Basically the banks want your money with no admin and it’s the generous call rate that keeps your surplus dough there. Yo’ll find it hard to beat that deal in the marketplace at present.

observa
observa
13 years ago

Oh and where have you boys been? You really need to keep your eye on the Big4 websites regularly to keep up to date with the latest banking products like this.

Interestingly enough, you can see how a run on a bank wouldn’t necessarily imply a queue of people at the doors like the post Xmas sales. They could be cleaned out while the staff are asleep, albeit interbank transfers take a day or 2 to clear so management would no doubt be knocking on the Reserve’s door the next day. Joe Public would never know.

JC
JC
13 years ago

Why isnt this safer than a bank account with one of the big four?

Because the government won’t ever walk away from a large Bank that is under RBA supervision, Nicholas. In fact no western government is likely to ever walk away from large bank depositors.

The government could walk away from a trust though.

Sinclair Davidson
13 years ago

LOL. Nice try, Nick. I’m not suggesting the ATO (or the government) go into offering banking services, or even modest intermediation services. That was tried and abandoned with the split-up of the RBA and Commonwealth Bank, and subsequent privatisation of the CBA. I am suggesting that the ATO pay interest on cash balances on money belonging to the public. That would provide decent incentives to the ATO and help your friend.

JC
JC
13 years ago

Okay, so if your saying they trust is restricted to government paper (only) then that is obviously more secure than a bank. The risk of course then is outright fraud or duration risk which is pretty minor.

I thought the well known funds invest in private paper too.

Seeing we sometimes develop the US’s bad habits I’d bet the government would stand behind cash man trusts too seeing the US government gave that undertaking last night as part of the package.

———-
I guess the best place to put one’s money these days is in the Stocks of US banks seeing you’re not allowed to short them anymore and the rescue package is supposed to take a great deal of the toxic waste sitting on bank balance sheets. News is sketchy about the deal and I guess we’ll get more info this weekend.

JC
JC
13 years ago

Ummm Should be:

Okay, so if your saying the trust is restricted to government paper

Niall
13 years ago

Ive told her that the chances of anything going seriously wrong are still very very small. But its pretty outrageous dont you think?

No, I don’t actually, Nick. If you believe the stories we’re being told by major Australian banks about their exposures to foreign toxic debt, then you’re more of a snake-oil salesman that I’ve previously believed you were. Let’s be frank, shall we, and admit that regardless of where an individual lodges their money in the current times, they’re open to the same vagaries of the financial markets, the administrators, trustees, custodians not to mention APRA, as anyone else.

There is only one viable, sure and stable commodity to invest in and that’s Gold. If ‘Tania’ really needs that money, and probably in the near future, Gold is where she ought to have invested it. Either that, or Australian Government Bonds. Bugger all growth, but shitloads of security.

rog
rog
13 years ago

Westpac also run at call cash management a/cs with ~6.7% interest providing the balance doesnt slip under $10k, and the chq fees are only 50c as opposed to $2 normally. Cash is getting harder to find so those with it are looking set.

Patrick
Patrick
13 years ago

I think JC is actually right and you are all exaggerating the risks of major deposit-taking banks, mainly for the reasons he gives.

On the ATO, they will pay repay it as soon as you lodge a tax return, or a month or so later at any rate, with no further prompting. In addition, if the payment is more than a few months before the repayment you will get interest, just a lot less (about half) what you may expect to get charged if you don’t pay when you should!

And the last thing any sane person should do is lend money to the nation’s lowest cost borrower!

Bankwest is also pretty safe, realistically, HBOS aren’t exactly in the kind of trouble that would see them skip town on any retail deposit investors in a hurry. If any first-world retail deposit bank was in that kind of trouble, things would be much much worse than we think – it is retail banks that have been buying their investment cousins!! Plus everything JC said about the politics, in the UK as much as the US as much as here.

niall
13 years ago

Bankwest is also pretty safe, realistically, HBOS arent exactly in the kind of trouble that would see them skip town on any retail deposit investors in a hurry.

Really?!!? One wonders of the name of ‘Lehman Brothers’ in the same context. Granted the exposures are different, but those exposures are only what we’re told they are, not what might exists in reality. One trusts you Tier One accreditation is up to date, Patrick.

TerjeP (say tay-a)
TerjeP (say tay-a)
13 years ago

There is only one viable, sure and stable commodity to invest in and thats Gold.

It’s been true for centuries. However the nature of monetary policy these days ensures that commodity prices (include gold) is far from stable. Whilst the gold standard delivered stable consumer prices, stable commodity prices and stable currency prices the current monterary system only manages the first of these. And even that only sometimes.

If the world banking system (built on government money) tanks then gold (the only signficant private money left) will have been a good investment. However the world banking system may not tank and so gold may not prove to be a good investment. So much depends on that bureaucrat named Bernanke and there in lies the stupidy of the modern monetary system.

observa
observa
13 years ago

Bernanke? I would have thought it’s a case of ‘in Paulson and the American taxpayer we trust’ now.

Patrick
Patrick
13 years ago

Niall, tier-one capital is ultimately neither here nor there, as should be fairly clear from my previous comment. And if you can’t think of a fundamental difference between Lehmann and HBOS, let me help you – one of them is into retail deposits.

Patrick
Patrick
13 years ago

Also; fwiw Tier-1 ‘accreditation’ is usually up-to-date every couple of weeks or so, again, though, it is not really the point.

PS: tier-one capital is basically share capital and retained earnings – money that no other party has a call on that is thus immediately available to the bank’s unsecured creditors, such as depositors.