23 September 2009
La Trobe's Mortgage Fund - a genuine alternative
"Increased recognition of the value of retail deposits means that there are now three distinct types of deposit accounts on the market", says La Trobe's Head of Funds Management, Paul Wells. Broadly speaking they fall into the following camps:
There are daily transaction accounts on top of these, but we have not included them in the discussion that follows.
- online savings accounts;
- cash management accounts; and
- term deposits.
Importantly, all three types of accounts are very different in what they offer, and selecting the right one for your purposes is essential if you are to make the most of your money.
Many consumers who want to put their money in a savings account often do not know what suits them best. It's not surprising, given that La Trobe understands that there are no less than 83 online savings accounts, 116 cash management accounts and multiple term deposit options available in Australia right now.
The differences between online savings accounts, cash management accounts and term deposits are all distinctly defined, but before choosing the right type of deposit account, you should first determine what features are important to you and which ones you are likely to use.
Are you happy placing your savings in an online account and not touching these funds very often? Is money going in and money going out constantly a more likely scenario? Or is
the money to be minded safely in a term deposit until the share market settles down?
The table below outlines the relative advantages and disadvantages of each type of deposit account in helping you choose what's right.
|Online Savings Account
|Highest interest rates with some beating the cash rate of 3%
||Most are required to be linked to a transaction account
|Seldom require large minimum balances
||Cannot directly access money externally (only through the transaction account)
|Most do not charge an account keeping fee
||Some interest rates may take the form of bonus rates or introductory rates
|Seldom are there conditions attached to the eligibility to earn the high interest rates
||Most do not offer transaction facilities
|Cash Management Account
|High interest on high balances
||High interest only payable on high balances (low balances only earn low interest rates)
|Transaction facilities attached eg: ATM facilities and branch access
||Most have a large minimum opening and ongoing deposit
||Many charge an account keeping fee
|High fixed interest rates
||Interest rates are fixed for the term. No opportunity to earn potentially higher interest rates
|Special promotions may attract exceptionally high interest rates
||Fixed terms. Early withdrawal may cause interst earned to be reduced significantly
|Instills the discipline of not withdrawing the money during the term of the deposit
Each example allows different access to your money, and the return on your investment is paid accordingly.
For those looking at either a cash management account, an online savings account,
or a fixed income return, La Trobe offers a competitive alternative with its
award winning Mortgage Fund. Comprising a number of Options, the Fund has
received awards from the Money Magazine 'Best of the Best' awards in 2007, 2008
and 2009 for the Cash Mortgages Option, and this year the Pooled Mortgages Option was placed second
to a now frozen fund in the Best Mortgage Fund category in the Money Magazine awards.
There are two Options in La Trobe's Mortgage Fund that offer a combination of features that mean that they can be regarded as genuine alternatives to online savings accounts, cash management accounts and term deposits.
La Trobe's Cash & Mortgages Option provides 24 hour access(3) like the online savings accounts and cash management accounts, together with a very competitive interest rate - currently 5.25% p.a.(1) variable. Only $1,000 is required to get you going, interest is calculated daily and credited monthly and there are no ongoing account fees.
La Trobe's Pooled Mortgages Option is similar to a term deposit in that the minimum investment term is 12 months(3), and this Option currently pays 6.95% p.a.(1) variable. Again, only $1,000 is required to get you going, interest is calculated daily and credited monthly and there are no ongoing account fees.
In both Options, the interest rate is calculated on the actual balance in your account, so your total investment is working hard for you.
However, you must balance the risk associated with an investment against the rewards generated by that investment, namely the rate of interest paid, and weigh the pros and cons in making your decision where best to place your hard earned savings.
In looking at the Options within La Trobe's Mortgage Fund, you must remember that
while many online savings accounts, cash management trusts and term deposits are offered by banks, La Trobe is not a bank and an investment in La Trobe's Mortgage Fund is an investment in a managed investment scheme. While the rates offered by the
Options in La Trobe's Mortgage Fund are generally higher than online savings accounts, cash management accounts and term deposits
offered by banks, La Trobe's Options are correspondingly higher on the risk scale of investments
than a bank.
It's your money, so take the time to understand what you are investing in. Once you've had a look at what's on offer, we think that you will find that investing in the Cash & Mortgages Option or the Pooled Mortgages Option of our Mortgage Fund are genuine alternatives to online savings accounts, cash management accounts and term deposits.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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