The best problem to have - investment advice needed, Australian edition

August 6, 2017 11:57 PM

We have received an unexpected inheritance in the ballpark of $300k. We've read all the general advice for handling windfalls, and we have no debts, separate retirement savings, no immediate needs really. We just want to park it somewhere for 6-12mo while we figure out what to do longer term...where though? Should we just stick it in a term deposit attached to our bank account, or pick a managed Vanguard fund (does it matter which one?), or something else? As above, we're in Australia. Thank you in advance!
posted by anonymous to Work & Money (8 answers total)

Interest rates on term deposits are no better that high interest savings accounts at the moment, so you'd be best of parking some of it in one of those, noting that most of them have total deposit limits for the higher interest, so you may have to split it into two. You usually also have to make a minimum deposit during the month as well.
posted by ryanbryan at 1:28 AM on August 7, 2017 [1 favorite]

Agreed that high interest savings account is your most flexible option - finder.com.au has up to date information on rates, some offer intro rates that are higher for the first few months. Also covers the need for deposits or extra accounts.
https://www.finder.com.au/savings-accounts/high-interest-savings-accounts
posted by cholly at 3:13 AM on August 7, 2017 [1 favorite]

You might need to split the money into a couple of savings accounts - a quick google search suggests that the Australian government guarantees up to $250k (in case of bank failure etc.) so you might want to put the remaining ~$50k in a separate account with another bank.

(The limit in the UK is £80k guaranteed per financial institution you have your money in, which is what made me think of this.)
posted by terretu at 4:24 AM on August 7, 2017 [1 favorite]

I agree that a high interest savings account is probably the best place to put your money for such a short period of time. You should also be aware that the government deposit guarantee is capped at $250k per institution so consider splitting across two banks (taking into account the impact of fees etc).
posted by Naanwhal at 4:24 AM on August 7, 2017

If you will actually deal with it, a short term stay in one or more high yield savings accounts is indeed your best option. If not, dumping it in some index fund now is a better idea so that it's done and you don't look back 5 years from now and wish you had gone ahead and invested some/all of it.
posted by wierdo at 6:24 AM on August 7, 2017 [1 favorite]

Financial questions, often, are really emotional questions. What's your goal for this money? What's your biggest fear? If the market drops 40% right after you invest would you sell immediately to protect against further losses? Or are you comfortable with major ups and downs because you won't need the money for years? If you tend toward the risk averse, or just don't want to deal with it right now, the high interest-rate savings is the right way to go, as described above. If you are willing to accept more risk for more return, take it and park it in the corresponding target date retirement fund. Done. You're invested, and you can forget about it until you're ready to retire. You could make this happen and be done with it all in a week. Target date funds have very low expenses, they rarely sell anything so taxes are low, and all the choices about asset types is made by someone else. They're basically a miracle. Vanguard did a study about individually managed retirement accounts and found that, statistically, the best number of trades per year to make is zero. Let that sink in. All the people asset allocating and researching stocks did worse than people who did nothing! Isn't that incredibly freeing?
P.S. Not sure about Australia, but around here the interest rates for term deposits of short duration (under 1 year) are worse than the savings account rates. Not quite sure how that happens.
posted by wnissen at 11:18 AM on August 7, 2017 [1 favorite]

We had a similar situation a couple of years ago after we sold our house in one city and took a year to buy in another city. Meanwhile we had the proceeds from the sale sitting around. It turned out our best option for maximising interest was savings accounts, specifically various online accounts with special offers. Most of the special offers are only for the first 3 months (or if you are lucky 6 months), plus as others said above, you need to split the money because of only the first $250k being guaranteed (and weirdly, most banks reduced interest rates dramatically for anything over $250k too, maybe for the same reason?)

However, it is $250k per person, I believe, so if you find a good deal you can have your partner and yourself both open a savings account in the same bank, and put half the money in each.

We did that, and then just opened new accounts and moved the money every three months when the special offers ran out. With one bank, and I can't recall which, phoning them up at that point and saying we intended to close the account and move the money triggered them to extend the special offer interest rate for another few months.

One other word of warning: you will end up with a big tax bill the year you do this, because the bank won't tax your interest at the time they give it to you. We owed $6000 in tax at the end of the year we did this. (And the net interest on the money still meant it was better than investing it anywhere with fees and risks, but it's something to keep in mind so you have the cash available to pay it. Also, the ATO decided that because this happened that year, one of us must be self-employed and they put us on a ridiculous payment plan without asking for the following year when we no longer had money invested. So we had to pay $1500 a quarter to the ATO the following year too, and then finally got it all back again at the end. I believe you can avoid this happening if you know in advance that it is a possibility and call the ATO to let them know that the large tax bill was a one-off temporary thing.)
posted by lollusc at 1:35 PM on August 7, 2017 [1 favorite]

re the tax issue - the "cutoff" last year for the ATO to not give you a choice whether to go on a payment plan for the next year was ~$8200, so you definitely won't hit that limit if you don't have any other investments (you'll earn ~$8508 at 2.8% on $300,000, so tax would be whatever your tax rate is times that).

Also if you do go over the limit, yes you must make quarterly payments, but you can re-calculated how much you think you will owe them rather than what they think, so if you used the money for a house deposit and were no longer earning interest you could return the form saying that your expected interest earning for that quarter was $0 and therefore your tax for that quarter was $0.
posted by trialex at 4:03 PM on August 7, 2017 [1 favorite]