Have been looking for some options for short term deposits (6mth - 9mth). According to this page: https://www.interest.co.nz/saving/term-deposits-1-to-9-month… , Some finance companies offer higher rates than the banks do (banks are around 6% while finance companies around 6.6%-7.15%). Are they safe to deal with?
Has Anyone Got Experience with Those Finance Companies For Term Deposit?
xsolider on 20/12/2023 - 15:00
Last edited 23/12/2023 - 00:10 by 1 other user
Last edited 23/12/2023 - 00:10 by 1 other user
Comments
This is what I used to tell clients back fifteen (?) years ago when everyone was putting their funds with finance companies like Hanover due to the 'really good rates':
Hanover is wanting to borrow money.
They are offering to borrow from you at 14%
Why are they not borrowing from, say, BigBank, at less than 14%?
Answer: BigBank won't lend to them for less than 14%, else they would
So, do you think you have a better handle on the risk involved, than BigBank?
If you do, then go right ahead, and lend your cash to Hanover at 14%I'm not saying you shouldn't lend to a finance company, or anyone else for that matter. I'm saying you should always understand the risks of lending to anyone, and preferably don't lend too high a proportion of your assets to any one party.
Hanover finance is a name that I haven't heard in yonders
If you're looking for a return in that range with low risk, consider PIE term deposits instead. ASB and BNZ have a return equivalent to 6.73% on 9-month deposits (assuming you're in a $70,000pa tax bracket).
Thanks! I actually didn't know this PIE term deposits thing. Will do some research.
I believe each of the 5 biggest banks (incl Kiwibank) offer Pie terms. As @Slogan above indicated you could consider them for tax reasons. Also - if it is a big amount you are considering investing compounding your returns may be advantageous. However, as you mentioned do your own research or approach a licensed financial advisor.
Since PIE term has higher interest rates and low tax rates. Does it mean that the regular term deposit has almost no advantage unless the investor's income is below $48000?
@xsolider: You need to read carefully though. The Pie term rates are usually the same as fixed term deposits. But because of the tax advantage the effective rate is often displayed - and when it is you often see 2 effective rates based on tax rates higher than 28%. I cannot give you specific advice but term deposits do have certain advantages eg if your tax rate is lower than 28%. Some may argue that term deposits are a bit more ‘stable’ than Pie Funds - note the difference in wording used. The same could be said for certain NZ based ETF’s that focus on overseas equities.
I still think though it is better to seek the advice of a licensed financial of investment professional.
Heartland also offers PIE term deposits and generally offers the best rate from a registered bank
Well I have money in 2 different Banks on Term Deposit on 1 year terms. When we put the money in the offers were about 5.7-5.8% . I'm relatively happy with that. If someone was to tell me that I could get another 1% but I'd have to take higher risk - I just wouldn't do that. It's taken more than 20 years to save up that money and for a gain of another 1% I ain't interested. YOU might be. But as someone said - Don't put all your eggs in one basket !
What are you chasing?
The return on your money or the return of your money.
Keep in mind that people who borrow from finance companies at higher than bank rates have either been turned down by a bank or do not qualify using their more conservative criteria.Maybe go and see an investment adviser as they can help sort out the goal setting options. FWIW interest.co.nz / moneyhub has good league tables on investment rates and moneyhub has a lot of useful info. Also have a look at sorted.org.nz .
I just put a good amount in to one of the major banks for 12 months at 6.25% - had to negotiate with them a bit and play them off with each other but we got there.
But as its a Pie Fund you get a good tax reduction as well and pushes the effective rate into the 7% range. Basically as close to Zero risk as its possible to get as its obviously highly unlikely one of the big banks is going down anytime soon (although not impossible, your talking a disaster). So not sure why you would take risk with a finance company for maybe .5% a more - but even then maybe not as you may not get the tax benefit.
Two things
The return ON your money or the return OF your money.
Choose PIE if on 28+ tax
It's the old risk v return scenario.
Finance companies are considered a higher risk than the main banks so in order for them to get people to invest money with them they need to dangle the carrot of higher interest rates.
Have a look at the credit ratings for any you are looking at and then make your call.
Finance companies have gone bust before but it doesn't mean they are all bad. On a 6 month term a difference of less than 1% p.a. may not be woth the risk to you so this is something you have to way up.