So you’re saving for a house deposit. You’re doing all the necessary sacrifices required for the big purchase – fewer coffees, batch cooking lunches on a Sunday and definitely less wine and beer!

Savings and investment : your savings aren’t safe in a bank account

But keeping this extra money in a savings account is not the best long-term strategy particularly if your savings goal is a few years away.

Low interest rates

Even for ‘high interest savings accounts’, you will only get a return between 1% and 3% per year. Interest rates aren’t expected to rise by a huge amount anytime soon either, but the costs of essentials like healthcare, utilities and education are rising by more than 5% a year.

The goal of saving money is to afford the things you want in the future. If you put $100 in the bank the idea is you plan to buy something worth at least $100 in the future. During the time you’ve been saving that $100 purchase will have increased to $110. Unless the return from your savings account can keep up with rising costs of living, you’re actually getting further and further behind over the long run.

Investing for a house deposit

One-way people circumnavigate the poor interest rates available from a savings account is by investing.

There are many different investment strategies and it’s important that you’re comfortable with the risk level of the investments. It’s natural to fear losing money, but low interest rates also decrease the value of your savings over time.

The stock market does have ups and downs which can make people nervous to put invest their money outside of their guaranteed savings about. Remember when hearing past performance isn’t a reliable indicator of future performance, that this applies to both good and bad years in the stock market.

When you look at the performance of the international share market over the past 36 years, it has recovered from crisis each time. The share market has its ups and downs, but in the long-run it has grown significantly.



Not investing is risky

A 4.3% return over 10 years will turn $20,000 into over $30,400, but with 2.4% you will be nearly $5,000 behind. If you can top that account up with another $1,000 per year over that period, you’d end up with over $42,600 or nearly $36,000 with 2.4% due to compound returns. This small difference becomes a big loss over time. However, a lot of people still leave their money in a bank savings account for decades, thinking it’s the safer option.

If you have time on your side, investing is a way of making sure your money will work as hard as you do.

Investing could help you reach your goal of saving for a house deposit faster and there are ways of controlling your risk level. Investing in a portfolio of different investments is a lot easier and cheaper than it used to be.

Online investment advisers can now provide professional and personalised investment services for much lower costs due to technology. Online investment advisers like Stockspot have made investing easier to do and much more affordable. They build globally diversified investment portfolios that are designed to match your personal situation, goals and attitude to risk.

Money in the bank is important

It’s still important to keep some money in cash. Before investing one of the first financial goals is to save up a few months’ living expenses in case of an unexpected event – like medical emergencies or a redundancy. This means you will have less trouble keeping up with big commitments like mortgages. Cash has provided ok returns and is a secure asset, but it’s not the most effective way to build wealth in the long-term.


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