The current investment landscape is challenging but there are some glimmers of good news! Byung Koo Mulder proposes a low-risk investment option that has recently become more attractive.
The challenge of saving for retirement
The 2023 Natixis global retirement index has recently been published and highlights the biggest concern for investors right now: inflation. According to the survey, ‘42% of working individuals say inflation is killing their dream of retirement’.
Balancing risk and reward is the ultimate challenge for investors. One way to do it is to diversify your investments. And now there’s a low-risk addition to your portfolio which offers a guaranteed return that is higher than standard bank interest rates and could help your savings keep pace with inflation, while remaining comparatively accessible.
Keeping ahead of inflation
Although interest rates have risen over the last year, traditional banks continue to offer rates below inflation. In Hong Kong, for example, HSBC is offering 1.025% on 3-month fixed deposits while average APY in the US is 0.57% according to a recent survey by Bankrate.
But there is another option.
After years of low interest rates, term deposit rates have recently become more attractive.
What is a term deposit?
A term deposit is a type of investment that offers the holy grail for investors: a guaranteed return! When you invest into a term deposit, you do so for a set period, typically 3, 6, 9 or 12 months. In return you benefit from a guaranteed rate of interest which is significantly higher than a standard bank deposit.
Interest rates are constantly changing and will vary depending on the length of term and the currency you invest in. Rates on a three-month term deposit are currently hovering between around 4.3% in US dollars, 4% in sterling and 2.8% in euros (note that these figures are indicative only), net yield once fees are deducted.
What are the disadvantages of a term deposit?
Is there a downside? Well of course, Firstly, you won’t have access to these funds for the length of the term. And secondly, as with all investments, there is risk. You could lose your money if the financial institution goes bust during the term of your investment.
Of course, this is highly unlikely if you invest in a bank with a high rating. Choosing a country with a deposit guarantee scheme that offers protection in the event of a bank failure provides an additional safeguard. The maximum deposit amount covered by these government-backed compensation schemes varies. In the UK it is £85,000 and €100,000 in Europe.
If you invest wisely, a term deposit is a low-risk way to grow your savings. You know you will get the capital investment back at the end of the term, and exactly how much interest you will earn. Even if the economy takes a dip, your money is protected and steadily growing over the specified term.
The importance of holistic financial planning
Term deposits are a great option if you have high cash deposits sitting in the bank however, they must fit into a holistic financial plan which aligns with your short-term needs as well as your long-term objectives.
If you want to benefit from current inflation-busting interest rates on your term deposits before they come down (central banks look likely to cut rates later in the year), get in touch for a review of your overall financial plan, and to discuss the conditions and requirements of this type of investment.
Guaranteed income and low risk: what are you waiting for?
I am a financial consultant in China. I live and work in Shanghai, but regularly travel to other cities in Asia for business. Because expatriates often move from location, I have customers everywhere, from Los Angeles to Shanghai, from London to Hong Kong. Most of my customers are based in Southeast Asia.
I am known for my straightforward Dutch approach in terms of financial advice and also a good eye for the risks associated with investing, and identify the risks of possible investments and insurance. As a financial adviser in China, I sponsor the Dutch Association in Shanghai.
