Natasha Janssens is the founder of Women with Cents and finance expert. You can see more from her on her website.
Question: I’m renting and looking to build up a deposit to eventually buy a property and pay for our wedding and holidays. I’ll have paid off my uni and car loans soon so I’ll have some extra cash to start investing and saving, and I’d like to start thinking about where to invest this money so I don’t just spend it! I’ve considered term deposits but you generally need $5,000 minimum to start these, also interested in shares possibly. Would love to know your thoughts?
Answer: Great work on paying down your debts and getting focused on the future.
I completely understand the temptation to seek investments with high returns, especially when interest on saving accounts is so miserable right now, but there are a few things to keep in mind.
And the most important of those is timeframe.
First things first.
I recommend starting with saving three months’ worth of emergency expenses. Because it’s possible that you’ll need quick access to these funds in the short-term, they are best kept in a high interest online saver account rather than a term deposit (or in the share market).
There are plenty of online comparison sites like Mozo, Finder, Canstar, or Ratecity to help you find the latest deal, just be aware that any honeymoon rates are special intro offers that expire after a period of time, and make sure you factor in the revert rate and any fees when making your decision.
Then you can think about short-term investment…
You mentioned you want to eventually buy a property, and also cover your wedding and holidays. Weddings and holidays, like emergency savings, are typically considered short-term goals so again, not generally suited to volatile investments like shares. But a term deposit may be a suitable place to stash this cash since you know ahead of time when you will need the money. Again check out comparison sites as there are quite a few term deposits on offer with a minimum investment of $1,000 (not $5,000).
…next up, long-term investment!
As for the share market, let me illustrate why timeframe is important with a couple of randomly-selected share examples.
Example 1: Commonwealth Bank (CBA)
Here are some CBA prices over the last three months: