Heard about the 8 per cent term deposit offer from Westpac? Or the Bank of Cyprus offer of 7.85 per cent term deposit for five years?
Are you wondering if you should put your money into bank’s term deposits or invest them into property? Well, it depends on.
Inflation should continue at a rate of 2.5 per cent to 3 per cent over the next few years. An 8 per cent term deposit would give you a real rate of return of 5 per cent or more with very low risk.
If you invest your money to property. Normally the risk is higher – but I don’t think in 5 years time Australian property market will collapse so I would say there is no real difference in terms of risk. The only factor that really matters is the home value appreciation rate.
Suppose you have $50,000 to use. If you put the money as term deposit for 5 years at interest of 7.85%, after 5 years you earn an interest of $19,625 before tax. Download a free term deposit calculator to estimate your return on term deposit.
You can also use the money to buy a property of $200,000 with 20% deposit of $40,000 and the other $10,000 to cover other purchase costs (such as stamp duty etc). Suppose the appreciation rate is 5% per annual (this means the property value will double in 15 years), in 5 years, the property will be worth $255,256. This means you have $55,256 capital gain. After selling costs and holding costs, you might be able to get $30,000 gain before tax. To estimate this more accurately, you can download the FREE Investment Property Calculator provided by Investment Property Calculator.
So which option you are going to choose? For me the answer is quite obviously.
By simply not touching the money, you earn interest at an incredible rate. Setting aside $5,000 and not touching it will be a benefit to you and your family because you’ll see a large return on investment (ROI). term Deposit take many forms, but at Amp.com.au the requirement is to begin with a deposit of $5,000 and keeping it in a fund for a set number of years. There are more advantages to it than just earning interest.
God, it is really difficult to find the term deposit rates on AMP website. The 5.15% interest rate seems good though.
Patric,
You have missed quite a few issues here.
1. The gain in 5 years on 50000 at 7.85 will be 22957.64
2. While you are happy to take add the interest earned by the extra 150000 (200000-50000) you have not accounted for the fact that you will be borrowing that money at a much higher rate but lets say you got a really really good deal and got it for say 6% – that would mean you had pay 50733.84 leaving you with a capital gain of just 4522.48 and after the 20000 you estimated as selling costs you would have a loss of 15477.50
so i think the choice is obvious – just not to you 🙂
Hi,
I went down the property investment road about 4 or 5 years ago. I still own the house and have had a rental income the entire time. So i think its been pretty good for me.
I always contemplated though, if 5 years ago i had no purchased property but instead opened a high interest or term deposit account. And put a regular figure from my wage into it – maybe $200 a week. Would this have been better?
From research ive done if you stay with property for long enough you will make more profit. But what about all the expenses involved in the property, like renovations, maintenance or the rates etc… You dont have all these costs with savings accounts and when you want your money its not like you have to sell a house!
Any thoughts?
There are a couple of issues missed by a few comments here, on the point of interest earned in a term deposit, you will be taxed on that income, on the point of investing in a property, correct, you would pay capitol gains, but only on 50% of the earnings at YOUR current tax rate, also…a term deposit has nothing to claim on so you paying tax ourtright where as a property has tax deductable items such as depreciation, especially if you caused the house to be built new, additionally you would rent the house out and while yes that too is an income, that would be offset by claiming the interest paid on a 2 or 5 year interest only loan, so no, you would not have paid all that interest as mentioned in this forum, the person that rented (needed a house to live in would have, in fact every capitol expense involved with establishing the new investment property would be claimed including travel for inspections, ground maintenance, depreciation of dishwashers, ovens, airconditioners, structure etc, any improvments that increase sale price etc etc…..my opinion is there is a definite advantage to investment properties….all the best KM
I just sold my home in south east suburbs for 595000 june last year.bought it for 135000 in 1992..i rented it since day one…had a top run for 10 years then the garbage came in (tenants)..over 20 years after everything including renovations…i reckon i walked away with 100grand…thats 5000 a year…for me it was right time to buy and sell..but i plonked the lot in a fixed term deposit (have other properties)..at 6.3 percent maturing june 2012..if i listened and took a risk.. gold was 1000 an ounce now 1700…only 30percent tax if kept for a year…but i wasnt willing to risk it..my friends its all about timing and research…i was lucky …but i remember having some money in pyramid at 18 percent and we all know what happened there!!!…i never touch shares ever ..i play as safe as i can…just use your head and dont be greedy!!!
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