It’s all very well to want to put your money into a term deposit, or into a new type of savings account with a snazzy name like FastSave Supreme Saver (just an example but not far off!). What do you get out of it though, apart from a name that sounds like something you want and a fuzzy feeling from doing something about your savings?
Like the canned cream-style corn debacle, it pays to compare apples to apples … or kernels to kernels? Certainly you should compare savings schemes to savings schemes, and then compare those to your other options for financial returns over time.
The problem with term deposits is that you need to be confident that the returns after tax on your deposit will outpace inflation. Otherwise, it’s of little to no benefit – especially if there is an unforeseen event and you need to break the term, resulting in penalty fees.
Speaking of fees – make sure you understand these before committing to opening a new savings account or signing up for an investment fund. If your money isn’t making headway against inflation, you definitely don’t need high fees eroding it too.
Is a term deposit better over time than a savings account? Possibly, depending on the offer. But again, you’re committing to tucking that money away where you can’t use it – so make sure if you do go this route, you still have some accessible fiscal padding for rainy days.
If you’re looking to grow your money over time even with inflation factored in, consider investing in a balanced and globally diversified portfolio instead.
2. How long will it take you to reach your goals?
As with a certain dryer which took almost four hours to dry one load of washing, some offers won’t get you where you need to be in the time you have.
Financial planning is typically through a long-term lens, so the metaphor is a little less direct in that unlike the dryers, you should be wary of anyone saying they can get it done in half the time.
However, your financial plan needs to take your unique goals, timeline and lifestyle factors into consideration to make sure they all align.
The longest period of your life is going to be the accumulation period. This is when we’re earning regularly and can contribute to savings, investments, pay down debt; all the things that a steady income from employment helps with.
De-accumulation is retirement, where you no longer have your main income. By the time you get to this point and start drawing down to cover your living costs, you want those clothes to be bone dry and ready to go – not still circling the drum, half-damp.
This is where working with a financial adviser can help. A one-on-one relationship with your adviser can guide your journey, and adjustments can be made to your investment strategy as needed to compensate for changes in your lifestyle or circumstances. An adviser will keep you on track, and more importantly, on time for planned retirement.
3. What’s your ethical stance, and is it being matched?
Another area the Consumer NZ awards highlighted was greenwashing – two products marketed as the eco-friendlier option for waste bags were not so ‘green’.
Terms like ‘ESG’, ‘sustainable’ and ‘ethical’ are used a lot in financial products. Unfortunately, while regulations are tightening, there is still a fair amount of ambiguity in what these terms actually mean.
If it’s important to you that your investments are not supporting certain activities or industries, you will need to get confirmation of this. You should be able to find this information as part of the general information and disclaimers, but you can also ask specifically if there is not enough detail.
If you can’t get a straight answer back – that’s probably an answer in itself.
The Value of Financial Advice
This goes beyond returns. Everyone is unique, with their own goals and outlook on life. Your financial journey is your own … but having a trusted fiduciary financial adviser in your corner is the best ‘hack’ you’ll find.
Good financial advice can offer less exposure to unnecessary risk as your adviser will know when to rebalance, and why. Then there are less easily quantifiable benefits like peace of mind, expertise, and advocacy.
As with the ‘Yeah, Nah’ awards from Consumer NZ, the proof is in the pudding – or rather, the canned goods.
Prioritise value over a price tag or flashy branding, and you’ll likely come out on top in the end.
