Why invest in cash?

There are so many ways to invest now, why would anyone hold cash?

Apart from the obvious convenience of having funds to hand, cash deposits can offer comparatively good rates of return even in the current low interest rate environment.

But investors do have to search to find high interest savings accounts that will maximise their returns – and may then discover fees and charges can sometimes outweigh the interest.

The comparison chart shows that term deposits are paying well above the zero to negligible rates on standard bank savings accounts. These term deposit rates apply on terms as short as one month and by investing online it’s easy to roll over the account when the term ends, or switch to a more competitive offer.

With term deposits, the investor is in control, knows the rate of return and is not risking capital loss such as with shares or funds related to market movements.

It’s an investment that suits the person who needs certainty and security and works well for those who have “lumps” of cash for a period of time. For instance, you can park some of the proceeds of a property sale in a term deposit while looking for another house.

Business owners who receive a large payment can invest in a term deposit while they consider their options, say an asset buy to expand. Many investors have cash sitting in share trading accounts earning miserable returns, even on substantial balances.

Most share investors want funds ready if a buying opportunity comes along, but will often have more than they need in their account from accumulated dividends and sale proceeds.

This is idle money that’s easy to overlook when in a share trading account because you aren’t focused on the interest rate.

A short-term term deposit can put those funds to work and the funds will be accessible within weeks if needed.

At a time when the economic outlook is unclear and investment earnings are very volatile, there is still a strong argument for the safety and guaranteed return of cash.



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