What To Do When Deposit Rates Fall Fast

Falling interest rates sound like good news, until you look at your term deposit and realise the return has already slid. We unpack what is hot and what is not as the economic narrative shifts, with share markets near all time highs and the finance industry racing to launch “income” products designed to catch your attention. Our focus is simple: how to avoid being bullied into action when the smartest move for many long term investors is to slow down and think. 

We walk through a clear decision framework for fixed interest and income investing: credit quality, when you get your money back, whether the yield is reasonable, and how the cashflow fits your life. We also talk about the real world triggers that force people to make choices, including the wind down of bank hybrids and the wave of cash returning to retail investors. If you are feeling stuck between lower deposit rates and expensive markets, we offer a calmer lens: would earning a little less be worth sleeping well at night? 

Listener calls bring the risks into sharp focus. We respond to a text message pitch for overseas bank bonds paying 9 to 10 per cent, explain the extra layer of currency risk, and share practical scam checks like verifying an Australian Financial Services Licence and searching ASIC warnings. We also cover what voluntary administration can mean for shareholders (with Rex as the example), discuss SMSF concerns about proposed tax on unrealised gains, and weigh the trade-offs of buying a home using super versus borrowing from the bank. 

If you want retirement planning and investing guidance that cuts through the noise, subscribe, share the episode with a mate, and leave a review so more Australians can find it.

DISCLAIMER: This podcast contains general financial information only. That means the information does not take into account your objectives, financial situation, or needs. Because of that, you should consider if the information is appropriate to you and your needs, before acting on it. If you’re confused about what that means or what your needs are, you should always consult a licensed and trusted financial planner. Unfortunately, we cannot guarantee the accuracy of the information in this podcast, including any financial, taxation, and/or legal information. Remember, past performance is not a reliable indicator of future performance. The Rask Group is NOT a qualified tax accountant, financial (tax) adviser, or financial adviser. Access The Rask Group's Financial Services Guide (FSG): https://www.rask.com.au/fsg

Transcript

Welcome And Safety Disclaimer

SPEAKER_00 0:00

The Talk Investing Podcast and blog discusses investment advice from our previous podcasts and radio shows by Remo Greco and Marco Melado. Learn all things around retirement and investing.

SPEAKER_03 0:18

On the ABC Listen app, your smart speaker.

SPEAKER_02 0:21

And on your radio.

SPEAKER_03 0:23

This is ABC Radio Melbourne and Victoria.

SPEAKER_02 0:26

With Lisa Leone.

What Is Hot And Not

SPEAKER_01 0:35

On the money.

SPEAKER_06 0:36

We're looking at what's hot and what's not in the context of economy, interest rates, and all the other things, and um the fight between Trump and Musk all sort of having an effect on our share markets. So what do you want to do about it? And what are the pitfalls to avoid? You can call ask a question. Anything we share here is general in nature, doesn't take into account your personal circumstances, financial situations or needs. Remo Greco, good morning.

SPEAKER_02 1:04

Hey Lisa, good morning. I was just thinking you've got a bit of grappa in the uh in the cellar downstairs. I might bring it in for you. That'll help you warm up.

SPEAKER_06 1:11

Oh, thank you. I didn't think about that.

SPEAKER_02 1:13

It'll kill all the Lurgies, that's for sure. It'll kill everything.

SPEAKER_06 1:16

Probably need that because there are a few bugs going around at the moment. So uh thank you. Uh now, what's hot and what's not. So I talked about the context in which we are operating. So interest rates going down, very good for your mortgage, but not so great if you've got a term deposit. Plus, we are hearing a little bit about an economy slowdown. We don't want to panic. So what can we do instead?

Rate Cuts And Product Pressure

SPEAKER_02 1:40

Yeah, well I think panic's a good word here because I've I'm just detecting the vibe and the narrative is changing a bit in financial markets. And I think it's really important for retail investors to be a little bit uh on on notice about how our industry is about to consume you guys, because interest rates have now dropped twice this year, and we saw those pretty lousy GDP numbers. And most of the economists have come out this week and said, Oh, we think rate cuts are going to come earlier, like July, and perhaps more often. And within that week, what we saw is our industry, which is fantastic at uh at capitalizing on opportunity, start to release new products to say, hey, don't worry about rates going down. You can invest in here and start to lock in all these rates so you don't miss out. Now, my concern really is that markets are really good at bullying people if they're not sure. There's markets are really good at trying to entice you to do something, like do something, rather than do nothing. And we know really by doing nothing it's not a bad idea most of the time for for long-term investors. They shouldn't be forced into thinking if I don't do something, I may miss out. So what are you going to miss out on? Well, I looked at my numbers when I was here exactly a year ago. The one-year term deposit at Macquarie was 4.8, today it's 3.8. So the term deposits have already dropped 1%, but the Reserve Bank has only cut rates by half a percent. So the game for most people who don't look at this very often and you know just have a fleeting glance, the game is already, you know, well until into the third quarter, so to speak. Rates in financial markets, in professional markets, already reflect what's going to happen in the next six months. It's already happened. So for people to wake up and go, oh, I better go and talk to my bank manager about locking in some term deposit rates, the bank manager's eating you f you know silly. So so if you haven't done anything now to prepare for that, then you bit you may miss out. But is that a big issue? That's the question, right? Because what the industry will try to make you do is stick your neck out a bit further to get a better rate, okay? And the question is, are people equipped to know how much of your neck do you want to stick out? And I think that's really the concern

Hybrids Ending And Cash Returning

SPEAKER_02 4:02

that I have. So we've seen a few things happen this week or in the last few weeks. Mums and dads and retail investors have a lot of hybrids, bank hybrids. That market is being shut down by ASIC, and therefore those hybrids will no longer exist in about five years' time. But as those hybrids come up for renewal, they mature and all the money comes back. So in the last three or four weeks, about two billion dollars has come back to mums and dads in their superfunds and in their in their normal portfolios. And there's probably another couple of billion to come back in the next few months. So there's a there's a reason for people to have to do something because they look in their bank account, in their super fund or whatever, and see that they've got additional cash to invest. Our point really is be careful about this. So the narrative is changing from one of rates are high, everything's fine, or the new narrative is rates are going down really, really quickly, do something. So you just need to be careful about being bullied. You need to be discerning about what you want to buy. The things you need to think about are the credit quality. If you're going to lend someone some money, is he good for it? Number one. Number two is when are you going to get it back? You're going to get it back next month, next year, next century. And the other thing is, is the interest rate that they're going to pay you reasonable? Now, most people probably d find it difficult to try to assess those things, right? But essentially a little bit of advice here can keep you out of trouble and you end up investing in securities or loans or fixed interest that's the term we use, fixed interest, that will be suitable for you. That's the key. It's got to be suitable for you. That's the trick.

SPEAKER_06 5:38

Remo, what are the courses of action that we might take, knowing that anything we share here, once again, is general in nature and doesn't take into account personal circumstances, financial situations, or needs?

Choosing Income Without Regret

SPEAKER_02 5:50

Okay. So things need to think about is when you may need the money. Obviously, liquidity is really important. If you put your money in a one-year term deposit, you ain't getting your money back for one year. So you need to think about when do you need it. The thing is, the amount of interest that you're going to get, the interest might be payable at the end of the one year, it might be payable monthly, it might be payable quarterly. There's lots of avenues now for you to be able to get an income stream that suits your lifestyle and your requirements. Like I say, our industry is very good at giving you what you want, but you've got to work out what do you want. So this is the trick we're talking about today. How long do you want to put it away? How often do you want your interest paid? And then are you happy? And this is really the key. At the end of the day, if you're not sure about what's going on at all, there's only one thing you need to worry about. Can you sleep at night? If any of these investments that you own causes you to wake up in the middle of the night, just the question, what am I doing? Do I understand it? At that point you need to say, hang on a tick, let's reassess. So people have very good intuition about this. They have good gut feel. And often they feel like they shouldn't rely on it or depend on it. But the sort of I'm not sleeping well at night, it's something that I'm just a bit unsure about. At that point you need to either seek advice or try to pull the investment. And then you can always start again, because we always make mistakes. But that's really important at the moment.

SPEAKER_06 7:13

And one of the themes that we hear from you over and over again is that, yes, you hear things in the news, but be very careful before you react. Trevor Burrus, Jr.

SPEAKER_02 7:24

That's right. Because the like I say, the narrative is changing to one where share markets everywhere, including here, at all-time highs. Like things have really bounced back really well. But you look at social media or the m or or general media, and there's things to worry about. But equity markets, being share markets, have had a fantastic bounce back off that Liberation Day low in April, and now pretty much everywhere is at all-time highs. Share markets are acting as if the coast is clear. I'm not sure whether normal investors like us feel that the coast is clear. And what that means is that if you want to just say, okay, I'm going to go and look for some good income shares, let's look for shares that are paying good dividends, most of those have already gone up. Okay, so you you're sort of caught in a bit of a bind here. And when you are caught in a bit of a bind, I think the thing to wor to to think about is you don't have to act. Okay, so let's say this year you earn one percent less on your funds than you did last year. Is that going to kill you? No. If you sleep well at night and you know what you own, it's really, really positive. But if you need income to live, these are things to start thinking about uh and perhaps seeking some advice.

Texted Bond Offers And Currency Risk

SPEAKER_06 8:39

Elaine from Rosebud is here. Hello, Elaine.

SPEAKER_07 8:42

Hello, hello, thank you for calling. Um I have a question that I've been approached on um on my phone from uh an intermediary um agency who would like to present um bonds from um the four banks in in overseas, like Balkan Swiss and and Hong Kong, and they say that they're very safe. And I'm I'm they're saying it's about nine percent, ten percent interest over a uh a year at the minimum, uh with a hundred thousand um investment. And I just don't know whether that it sounds good because they're safe from those banks, but I don't quite know whether that's true or not.

SPEAKER_02 9:33

Yeah, there's a bit of this going on out there, and um this is not unusual at uh uh at this stage of the cycle, the investment cycle. Markets are all-time high, there's lots of participation in financial markets, and therefore people around the world are hunting for new countries to try to flog their wares, and this is just one of them. International bank bonds are a big part of the market. You can buy them here in Australia as well from rep reputable players. I would argue, though, that uh Australian banks are regarded very, very highly compared to international banks. And the question is, what does a retail investor or an ordinary investor know about Barclays Bank or Citigroup Bank? It's very hard to do your due diligence on these uh products. You do need advice around here. Eight or nine percent, you certainly could get that. International investing has always got one big issue, and that is that you're investing into another currency. So if the currency goes against you, your eight or nine percent can go to zero very quickly. And so that's a that's like a bit of a uh an unintended risk or consequence that you need to be careful of. So these products, like I say, the narrative is changing, and people are going to chase you to spend money in these areas. You do need to seek a little bit of advice here. Returns of six, seven, eight percent around the world are generally okay. So these returns are not out of the ordinary. You do need to understand what you're investing in.

SPEAKER_06 10:59

Sounds like there's two levels here, though, Remo. So you're assessing the potential uh investment in these bonds with I'm not even sure whether receiving a text message is a true thing or not. I it sounds because should Elaine be worried about scams? It seems odd to receive these text messages with these offers?

SPEAKER_02 11:20

Yeah, look I I look I'm I'm I'm not sure because social media and media generally is changing so rapidly.

SPEAKER_06 11:26

Um Is there good ways to check? So how do you track back once you've received one of these text messages, maybe don't reply to it?

SPEAKER_02 11:33

Correct. I wouldn't click on the link, but I would then look at maybe searching uh to see whether the company exists in Australia, whether it has an Australian Financial Services license. These things are sort of pretty basic issues. Um then look at the ASIC website to see if any of these groups have been labelled as fraud or those sorts of things that you need to be careful of.

SPEAKER_06 11:54

There you go, Elaine. So you've got a couple of leads there for the A.

SPEAKER_02 11:57

But this is really what we're talking about here, that these sorts of opportunities, theoretical opportunities, are going to be thrown at people and they just need to be pretty wary of it. Good on you.

SPEAKER_06 12:05

Thank you so much, Elaine, for your call.

Rex Shares And Voluntary Administration

SPEAKER_06 12:07

Uh moving to Haviz now. Hello.

SPEAKER_01 12:10

Yes, uh good morning, uh Remo and Elisa.

SPEAKER_06 12:13

Good morning.

SPEAKER_01 12:14

Um I have I haven't got a very good uh with the share market. Uh I want to ask Remo, I bought Rex Share a few months a few years back and uh Rex Airlines and now he's been grounded. So I want to know what happened to with the Rex shares because in my CMC Invest account they is still showing that I have got uh these unit is still is valid, but not trading.

SPEAKER_02 12:46

Good question. Yeah, I'm not sure what happened to Rex. I I'm it's I've sort of missed this one. It's not an issue or not a sector that we normally invest in, being airlines per se. So I'm not sure if Rex has uh so the shares may be suspended. I'm not sure if it's uh in liquidation. I'm not sure, uh Hafiz on that at all. Um maybe a bit of a Google search. It's not unusual for your shares to still be listed on the registry, but they're not listed on the market. That's not unusual. Um but from there I'm not sure.

SPEAKER_06 13:21

So it says the airline entered into voluntary administration last year. Right. Administrators uh administrators have till the end of June to find a buyer. I'm just googling this, as he said, I'm looking on ABC News. But let's say we do have a company, any company, that is in voluntary administration. What happens to the shares?

SPEAKER_02 13:39

Zero. Zero. We basically say your wallpaper, the toilet with it that you won't get anything back. Oh that so shares are the last people, people who own shares are the last people to get any money back when the company is sold off. You're even worse than that, you're at the back of the queue. So unsecured creditors will get paid before you do. So it's very unusual in this sort of situation for equity shareholders to get anything at all. Um yes, you you're basically look waiting for the letter from the receiver or the administrator that says, We've done everything we can now, you're going to get nothing. You are now entitled to write these off for tax purposes. And at that point, you then claim the loss. It's a very unsavory letter, but nevertheless, that's the way it works.

SPEAKER_06 14:22

All right.

SPEAKER_02 14:23

No risk, no return.

SPEAKER_06 14:24

Javier, oh no. All right, well, keep on watching the news then, I think. That just generally happens, doesn't it? Uh thank you for your call.

SMSF Worry Over Unrealised Gains Tax

SPEAKER_06 14:32

And we have um Peter now from Williamstown. Hello, Peter.

SPEAKER_04 14:38

Good morning. Thanks for taking the call.

SPEAKER_06 14:40

Pleasure.

SPEAKER_04 14:40

Um I'm retired. I have a self-managed super fund, which I do, obviously. But I'm really concerned about this proposed tax on unrealized capital gains. So I have a lot of questions about that, but a couple are what will the cost base be that they assessed on? Price you on that most recent rise. Uh will it take into account the loss of capital gains?

SPEAKER_06 15:05

Can you hear this remote? Um, Peter, go a little bit closer to the phone, because you're just far away from the Peter Peter.

SPEAKER_02 15:11

So cost bases and and those sorts of things. Okay, so um just as a general comment around this issue of the new the new uh uh tax, the alleged tax, let's call it for the moment, hasn't been passed yet, won't get through until July or August, is that if you talk to any accountant or superannuation specialist, they will give you the same sort of get out of jail free answer here, and that is the rules haven't been written yet, and therefore to act or to surmise that you know what's going to happen is really difficult. Ten years ago, when superannuation was changed by governments, they used to do a thing called a grandfathering clause. So it basically said that up until tonight at five o'clock, whatever arrangements you had in super stays the same, and from tomorrow morning onwards it goes to the new plan, right? That all went out the door, and now we have things that are retrospective. So they change things all the time. I would just argue at the moment is, Peter, not to do your head in, but we do need to wait for this sausage to be made first before you start to think about any major changes to how you organize yourself manage super. There's a lot of changes and a lot of things going on behind the scenes about those sorts of things you're talking about, start dates, cost bases, what do you do with losses? These sorts of things are quite complex. I think you need to be really careful, you don't jump the gun here. Uh and the media is all over this, but if you talk to major accounting firms and financial planners, and even our guys on our desk, they go, listen, just relax, take a step back and a deep breath, wait for the rules to come out, and then start to make some reasonable comments. That would be my view.

SPEAKER_06 16:48

Um we're talking uh uh we had a caller about the text message, basically offering about buying international bonds. And we have just got a couple of text messages saying uh look, I wouldn't do anything financial from a text message, and I think that's wise. And then this second text message is saying the easiest way to check is to Google the business name. So the text message is purported to come from a business plus scam, and it'll come up if there is a scam. Yeah, scam watching.

SPEAKER_02 17:16

Scam watcher asset, correct. Well done. Thank you guys for that. Thank

Buying A Home Using Super Or Bank

SPEAKER_02 17:19

you.

SPEAKER_06 17:19

And let's go to Uri now. G'day, Uri. Yes, good morning. Good morning. How many questions can I ask? Oh, well, it depends on how quickly Remo can uh answer, but usually one.

SPEAKER_05 17:34

Usually one. Okay. Um I am uh because I have two jobs, I keep up one job, so that means I am able to access my super. Um if I purchase property, it's better to borrow the money from the bank or using my super.

SPEAKER_02 17:53

Yeah, good question. That's a good question. So there's a few uh things to think about here, and that is that super is if you think about it, super is there for retirement. It's to provide for your retirement. That's the guts of what super is all about. So that's the rules, whether we like them or not, and how they're going to change in the future, but they're the rules about that. But I also understand that buying a property and having a roof over your head is really, really important. So these are the two trade-offs. If you own a property or you borrow from the bank, the interest that you pay to the bank is non-deductible. However, the value of your property, if it's your primary residence, of course, the value of that property is capital gains tax-free. So there's a couple of trade-offs there. The other part is, well, what about at your age, the bank may not lend you the money, or the interest rate they're charging you is too high, or there might be some conditions on that that you don't like. Then it may be that you do withdraw your funds from Super as a lump sum. Um presumably I'm assuming that is tax-free, and then using that to buy your property. So there's a couple of things to think about there. This does happen and is happening more and more. I just question the issue that five or ten years later you still need an income stream to live off in retirement. Otherwise, you the fallback position is the age pension.

SPEAKER_06 19:11

All right, Yuri. Well, I hope that answers your question, and you might need to call back next Sunday because we need to move on right now.

Final Thanks And Wrap

SPEAKER_06 19:17

But I want to say thank you to everyone um for your wonderful questions. Thank you. Remo Greco, share market specialist, will be back with us again another time. Thank you.

SPEAKER_02 19:26

Thanks, Lisa.