What are cash and fixed interest investments?
New Zealand cash investment and fixed interest investments involve you as an investor lending your money to a bank or other organisation in return for interest payments. Risks associated with this form of investment are generally the lowest of all asset classes. Fixed interest and cash investment in New Zealand will normally produce a regular, reliable income, whilst protecting your initial capital and providing the additional advantage of a relatively liquid investment. Having funds invested in this way is useful if you need to call on your money in a relatively short timeframe (say, approximately three years).
Cash investments in New Zealand
“Save some money for a rainy day” is a saying almost all New Zealanders have heard from a well meaning relative or friend at some stage in their lives. This statement is grounded in fact, however, and a cash investment is one of the best ways to do so. Putting cash into an on-call bank account is a sensible part of any investment strategy. Recently, New Zealand has experienced a surge of popularity in online call accounts. The key factors in choosing a good cash investment in New Zealand include:
- Ease of access to money
- Low or non-existent fees (and ideally, no charge for making a withdrawal).
- A good interest rate (interest should be compounding, and although interest rates will be lower than a fixed interest investment, good returns are available).
Fixed interest investment in New Zealand
Fixed interest investment involves you as an investor lending money to an institution for a fixed period of time, where the institution agrees to repay you the principal at the end of the term, plus interest at regular intervals. There are a number of fixed interest investing options, available from most New Zealand banks:
1. Term Deposits
A term deposit is a common way in which Kiwis choose to make a fixed interest investment. Term deposits can be a very useful means of helping an investor to achieve their short term goals (for example saving for a house deposit), however there are a few risks in this seemingly safe investment. Term deposits are illiquid, meaning that breaking a term deposit early to access the cash will result in loss of much of the interest income. Inflation can greatly affect a term deposit investment. In the past, New Zealand inflation rates have been high enough to make term deposits financially non-viable; that is, term deposit interest rates were lower than inflation, meaning a negative return for investors. Look around for the best fixed interest term deposit rates, and ensure that you consider your investment goals before putting significant sums into term deposits.
2. Debentures
Debentures are a form of fixed interest investment in which an investor lends money to a finance company, who in turn lends this money (at a higher interest rate) to other borrowers. Recent finance company collapses have resulted in a big shift away from this form of investing, so it pays to be wary when considering debentures as a form of fixed interest investment in New Zealand. If you do decide to include debentures as part of your portfolio, look for a large company, with a high credit rating. Look at who they lend to and assess the risk.
3. Kiwi Bonds
Kiwi bonds are a government guaranteed, retail stock fixed interest investment. They are extremely low risk, and to go with this have a lower level of interest payable. Kiwi bonds are a safe alternative to term deposits, and have maturation periods ranging from six months to four years.
It is important to note that with any New Zealand cash or fixed interest investment, investing can be done directly or through a unit trust. Time spent analysing and researching your options will prove invaluable in the long term.
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