Ask Paul: Where to save deposit while interest rates are low?


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Q. Paul, I'm wondering if there's a better way to put away my short-term to mid-term savings, with online accounts giving such low interest rates these days.

I'd like to save up for a house deposit but I want to know if there's a better way to put my money to work in the meantime. - Theo

A. Theo, I could bang on for quite some time on this topic.

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But the truth is simple. Options such as shares, property and other growth assets are for the long term.

As you say, you are investing for the short to medium term.

So stick with online accounts for your deposit.

The low rate of interest is a pain. But this is not as much pain as you would feel if you held growth investments such as shares and got your timing wrong.

Sure, it looks great if you luck out and prices go up but how would you feel if share prices dropped, say 50%, just as you were getting ready to buy your first home and you lost your deposit?

Matching risk and return is the key. Your time frame is short to medium, so stick with short-term to medium-term investments.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.

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