Introduction

In 2011, the average term deposit could earn you around 6% per annum. Since then, the times, they have a-changed – and so have the returns on term deposits.

Despite average one-year term deposit rates paying around 2.75%, they still take an important role in most financial portfolios for the capital security and diversification components they offer.

The Reserve Bank of Australia (RBA) sets the cash rate via its monetary policy. The aim is to stimulate the economy by making savings accounts and term deposits unattractive and make borrowing cheap to encourage consumers to spend.

Generally this kind of monetary policy only lasts a couple of years which is why so few economists foresaw the protracted period of low rates we are experiencing.

Introduction

Just when you thought investing was easy to understand - you put your money into shares, property, fixed interest, cash, etc. – your adviser starts talking about “investment styles”!

In essence, what that means is how fund managers choose the underlying investments of their funds.

Introduction

The term ‘Annuity’ is often mentioned in the financial press, but what actually are annuities and how do they work in practice?

The word annuity itself originates from the meaning ‘annual’ and can by definition, be described as ‘a yearly allowance’. To explain them in plain English is as a ‘really long term deposit, one where it is known exactly what the interest rate will be all the way along and when the payments will stop’.

Although many people may immediately think an annuity is locked away forever, that’s not always necessarily true. Like a term deposit an annuity can actually be cashed in before the term expires (even the lifetime ones in some cases). This may not always be the best course of action but don’t immediately disregard annuities if this is your main concern.

So, why have an annuity within a portfolio? If you have read this far, stay with us as they do make a lot of sense when used appropriately.