Choosing between a high-interest savings account and an investment fund for a three-year goal involves weighing stability against potential returns and risk. Seek advice from a financial professional to align choices with your unique situation, considering income, risk tolerance, and specific objectives.
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“I need help deciding if I should use an investment platform to keep saving or continue with my savings account with my bank, BNZ Rapid Save. I’m a high-income earner and I usually get taxed at 33% on my interest returns. Would I be better off saving with an investment fund so i get taxed at the PIE rate, 28%? My worry is, though, that I’m only saving for 3 years, so I’m not sure if I would benefit more. Can I still get decent returns on a short term investment?”
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Savings Account Advantages:
For a short-term savings horizon of three years, a high-interest savings account, such as the BNZ Rapid Save, offers several advantages. These accounts typically provide a stable and predictable interest rate, ensuring the preservation of your capital with minimal risk. The liquidity of savings accounts allows easy access to your funds, an important feature when you have a relatively short time frame for your savings goal.
Investment Fund Considerations:
While investment funds may offer the potential for higher returns, they come with increased risk and volatility. With its lower tax rate of 28%, the PIE tax structure can be advantageous. However, assessing the historical performance of the specific investment fund you’re considering is crucial. In a three-year period, the market may not provide sufficient time to ride out potential downturns, impacting the overall returns on your investment.
Risk and Market Volatility:
Short-term investments are more susceptible to market fluctuations, and the higher risk associated with investments might not align with your goal of preserving capital over a limited time frame. It’s essential to evaluate your risk tolerance and consider whether the potential for higher returns justifies the increased volatility, especially when compared to the stability offered by a savings account.
Professional Advice:
Given the complexity of financial decisions, especially when balancing risk, return, and tax considerations, seeking advice from a financial professional is advisable. A financial advisor can assess your unique situation, considering your income level, risk tolerance, and specific goals. They can provide personalised recommendations that align with your financial objectives and guide you in making an informed decision between a high-interest savings account and an investment fund for your three-year savings plan.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
