In business, having surplus capital to invest is a nice position to be in. With interest rates at historic lows, we asked a prominent economist where it's best to park your money.
“Many of our clients are corporates, businesses, assets companies, that have surplus cash that they're happy to set aside for a few months or 12 months and … earning 1.5 per cent or 2 per cent isn't great,” explains Christopher Joye of Smarter Money Investments.
“And they need to make, as very focused business folks, their cash work as hard as they do.”
Instead of low-yielding savings accounts or term deposits that lock up your money, Christopher suggests that managed cash funds can earn returns of around 4 per cent at present, while also remaining flexible and accessible.
“[For example], we have about half of the portfolio right now in cash deposits and the other half is in bonds issued by the banks: the major banks and the regional banks,” he says.
“When you invest in a deposit, you're lending money to the bank; you're becoming a bank to the bank. You could do that at 1.5 per cent, but if you're more sophisticated you would invest in bank bonds, which pay a higher interest rate.
“So right now anywhere from 3 per cent to 4.5 cent: much better that what you're getting in a deposit. But that market's hard to access. The minimum investment size is $500,000 and you really have to be an institution most of the time to access the bank bond market.”
He adds: “My own personal view is that their bonds have very similar risks to their deposits.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.
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