Where to park a windfall from selling your property
You've decided to sell your family home. Perhaps you've outgrown it and need to find something bigger to move into as soon as you sell. Or maybe you're moving for work, perhaps interstate or even overseas, and are keeping your options open regarding buying another property.
Either way you'll need somewhere to put the funds from your sale, preferably somewhere where the value of your money doesn't go backwards - and it's not easy given our low interest rates.
Your options will mainly be dictated by how long you've got between selling and buying. If you're basically trying to move from one family home to another without much time in between, your best bet is likely to be an online savings account.
Rabobank's high-interest savings account (which was one of the top three online saving accounts in Money's 2020 Best of the Best awards) pays 2.25% for the first four months for new customers (up to $250,000), so if you think your money will be parked for less than this it could be a good bet. After four months the rate reverts to 1.05%.
For those who expect to hold their funds for longer, UBank's USaver Ultra (also a top three placegetter in Money's Best of the Best awards) pays an ongoing rate of 2.1%, including a bonus rate of 1.06% as long as you deposit at least $200 a month. This account also gives you ATM withdrawals and the ability to make direct debits and use BPay.
Both accounts are covered by the federal government guarantee on deposits up to $250,000. For those whose house sale proceeds are more than this, you could split the money between different institutions so it is all guaranteed. (For a full rundown of the top-paying online and regular savings accounts, see infochoice.com.au.)
You could also consider term deposits, but these generally are not paying as much as the accounts mentioned. The highest rate for a three-month term was 1.8% at the time of writing and 1.7% for 12 months.
If you're willing to forgo the $250,000 guarantee to get a better return on your money, check out mortgage lenders such as La Trobe Financial and peer-to-peer lenders such as RateSetter.
La Trobe's 12-month term account (winner of Best Credit Fund - Mortgages in the Best of the Best awards for 11 years in a row) pays 4.9% (at the time of writing), with monthly interest. All funds are invested in cash or loans secured by first mortgages in Australia. But you do have to hold the account for 12 months. For those who want a shorter term, La Trobe also has a 90-day notice account paying 2.9% where your funds are usually available on 90 days of written withdrawal notice.
RateSetter's products are generally longer-term, but it does offer a one-month option, which at the time of writing was paying an annual rate of 2.6%.
Holding onto the family home rather than selling it is one option worth considering. Obviously it mainly suits those who are fine with renting for a while, unless of course you have the funds to buy a second home.
With prices tipped to rise strongly in many capitals, this strategy has the ability to provide better returns than parking funds in alternative assets. And the good news is you can hold the family home as a rental property for up to six years without being liable to pay capital gains tax on it. This applies as long as you have first lived in it for at least 12 months and you nominate it as your main residence when you sell it. And even if you own two properties you can only nominate one as your family residence at any point of time.
Indeed, you can repeat the process if you wish. Live in your original home again for a period and then rent it out for up to a further six years without incurring CGT, as long as it's nominated as your main residence when you sell.
If you are contemplating a relatively long period of renting, an alternative would be to sell the family home and use the proceeds to build a share and/or managed funds portfolio, but this generally carries more risk than investing in a well-located property. And unless you have the expertise to pick your own investments, you could incur hefty fees to pay for expert advice.
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