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Real After Tax Term Deposit Returns for Australian Savers are Negative; Savers Punished. Debtors Rewarded. Tax and Inflation Work for Borrowers and Against Savers.
Topic Started: 6 Mar 2012, 11:00 AM (20,818 Views)
Aussiehouseprices
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I wonder if the average term deposit rate that you've used is the avereage that people are actually making or if it's the average of all the rates that are being offered.

With shares and property, you need skill (or luck) to beat the average. With high interest savings or term deposits, you just need Google.

I ask because I've been consistenlty getting around 40% higher than the average shown.
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Shadow
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Bubblelicious
6 Mar 2012, 12:27 PM
Even if it was so 0% on cash looks pretty good versus leveraged losses on property.
Apart from minor falls in 2008 and 2011, house prices have been rising for most of the period where real returns on savings have been zero to negative.

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Despite the obvious trolling...
Me? I would never troll. I am outraged by the suggestion. Outraged!
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Shadow
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Aussiehouseprices
6 Mar 2012, 01:58 PM
I wonder if the average term deposit rate that you've used is the avereage that people are actually making or if it's the average of all the rates that are being offered.
It's the average of the rates on offer. If you lock in for three years you could get around 1% above the average TD rate, but once you take tax and inflation away, you'd still be pretty close to zero return. And then there are people who save in 'at call' savings accounts who would have even lower rates of return.

If we're comparing return on savings with return on property then it's best to look at the averages in both cases.

If you want to isolate savings to the higher 3-year TD rates, then you could also isolate property to the higher returning properties.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Trojan
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Aussiehouseprices
6 Mar 2012, 01:58 PM
I wonder if the average term deposit rate that you've used is the avereage that people are actually making or if it's the average of all the rates that are being offered.

With shares and property, you need skill (or luck) to beat the average. With high interest savings or term deposits, you just need Google.

I ask because I've been consistenlty getting around 40% higher than the average shown.
Averages are just that - an average.
Personally, my house is also rented out at more than the average 2-3% rental yield and I wouldn't call myself particularly lucky or skillful.
Probably more due to the fact I couldn't afford a $4 mil house which only rents out for $2000pw
Edited by Trojan, 6 Mar 2012, 02:16 PM.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Aussiehouseprices
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Trojan
6 Mar 2012, 02:12 PM
Aussiehouseprices
6 Mar 2012, 01:58 PM
I wonder if the average term deposit rate that you've used is the avereage that people are actually making or if it's the average of all the rates that are being offered.

With shares and property, you need skill (or luck) to beat the average. With high interest savings or term deposits, you just need Google.

I ask because I've been consistenlty getting around 40% higher than the average shown.
Averages are just that - an average.
When it comes to property, average is average. But maybe not with term deposits. The average rate being offered is not necessarily the average rate that people are making. Wouldn't people be lured towards the companies that are offereing the highest rates?

Say a new company offers a 1% term deposit. That would lower the average rate being offered - but no-one would sign up.
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Trojan
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Aussiehouseprices
6 Mar 2012, 02:22 PM
When it comes to property, average is average.
Is it?

From my understanding the average yield on houses is calculated by taking the median property price and dividing it by the median rent.

The problem with this formula is most rental properties is on the lower price bracket.
And thus the average yield looks artificially low - like average term deposit rates.

So in reality, its not very hard for an average property investor to achieve more than the publicised 2-3% rental yield.

Aussiehouseprices
6 Mar 2012, 02:22 PM

But maybe not with term deposits. The average rate being offered is not necessarily the average rate that people are making. Wouldn't people be lured towards the companies that are offereing the highest rates?

Say a new company offers a 1% term deposit. That would lower the average rate being offered - but no-one would sign up.


Then why isn't all savings parked in the highest rate term deposit or savings account?
Edited by Trojan, 6 Mar 2012, 02:37 PM.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Shadow
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Aussiehouseprices
6 Mar 2012, 02:22 PM
Say a new company offers a 1% term deposit. That would lower the average rate being offered - but no-one would sign up.
That rate wouldn't be included in the average figures shown in the RBA table. This is how they calculate it...

Quote:
 
Figures for ‘banks’ term deposits’, where available, are averages of the five largest banks’ rates, except prior to April 2001, when the averages are for the four largest banks.

The term deposit ‘average rate (all terms)’ is the average rate on $10 000 term deposits across all terms at the five largest banks, including their advertised ‘specials’ and regular rates.

The term deposit ‘average ‘special’ rate (all terms)’ is a weighted average of the five largest banks' ‘special’ rates. From February 2009, the rate is based on the banks’ advertised ‘special’ rates. Prior to this, the ‘specials’ were determined by the RBA.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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stinkbug
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Trojan
6 Mar 2012, 01:48 PM
What about those with no debt.
Like Bubblelicious, I'm curious whether people are trying to find gains now or just preserve wealth.
If its the latter, than a term deposit is doing a great job.
Good point, but I haven't given it much thought since it doesn't apply to my situation.
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Aussiehouseprices
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Trojan
6 Mar 2012, 02:32 PM
Is it?

From my understanding the average yield on houses is calculated by taking the median property price and dividing it by the median rent.

The problem with this formula is most rental properties is on the lower price bracket.
And thus the average yield looks artificially low - like average term deposit rates.

So in reality, its not very hard for an average property investor to achieve more than the publicised 2-3% rental yield.
RPdata indicate that rental yield is is a fair bit higher than 2-3%. Nevertheless, I wasn't intending to argue that rental yield is a perfectly accurate measure - but it is, at least, a measure of what people are actually paying for property and actually receiving in rent.

On the other hand, as Shadow has pointed out, the term deposit rate is the average of rates offered (and limited to the big 4 banks) but not necessarily the average rate people are getting. I was wondering why it seemed low and I guess that's the answer.

Quote:
 
Then why isn't all savings parked in the highest rate term deposit or savings account?
Presumably because not everyone knows or cares enough to shop around. But still, I'm sure those offering above-average rates would attract more business than those offering below-average rates.
Edited by Aussiehouseprices, 6 Mar 2012, 06:04 PM.
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Thatguy
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Shadow
6 Mar 2012, 11:00 AM
This chart shows the real (inflation adjusted) after tax returns on term deposit accounts for Australian savers. Savers who leave their money languishing in bank accounts are obviously being severely punished for their foolishness. The effective return on their capital is zero to negative.

Meanwhile, sensible homeowners enjoy capital gains, no rent to pay, stability of tenure, negative gearing benefits, and inflation reducing the real value of their home loans, leading to a comfortable rent-free, debt-free, asset-rich retirement. No wonder so many smart people aspire to home-ownership.

Posted Image

Sources...

ABS CPI... http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Dec%202011?OpenDocument
RBA F4... http://www.rba.gov.au/statistics/tables/xls/f04hist.xls
Treasury... http://comparativetaxation.treasury.gov.au/content/report/html/06_Chapter_4.asp
OK let's assume those charts are correct and the comparison valid (which it quite possibly is).

Now where does that leave us considering the practical implications of risk vs return. Is there perhaps some risks with property vs term deposits that has not been factored into that post?

Edited by Thatguy, 6 Mar 2012, 06:34 PM.
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