Beware of fixed-income investments

With interest rates at historical lows, the stock market negatively affected by COVID-19, banks cutting interest rates on term deposits and their dividends to shareholders. The property market’s value predicted to decline, there is no doubt that we can be attracted to investments offering a fixed income without the abovementioned volatility.

The Australian Securities and Investments Commission (ASIC) is warning investors. Particularly people over 60 who have retired, to beware of investment products that are marketed as term deposit alternatives, offering a regular fixed interest return.

It should be stressed that genuine ‘term deposits’ can only be issued by authorised deposit-taking institutions such as banks, and only these term deposits are protected by the Government’s Financial Claims Scheme, which guarantees $250,000 in the event of a bank collapse.

ASIC warns that the investment providers:

  • offer a higher return than genuine term deposits, by approximately 2-3%
  • these products have more risk
  • these products are not eligible for the Governments Financial Claim Scheme
  • some of these products are similar to a mortgage product. That is, you provide the promoter say $100,000 and he on lends it to a property developer
  • these products are generally marketed as ‘alternatives’ or ‘substitutes’ or ‘like’ term deposits
  • your ability to redeem these assets can be severely limited. This is particularly the case where your money is used to finance a property development that is years away from completion (or even worse, in these uncertain times, they may never get completed and/or sold)

Should you be unsure of the product you are investing in, contact Peter Quinn to submit an online enquiry or call us on +61 2 9580 9166.  We also offer a FREE 45-minute consultation should you have other financial planning, taxation or superannuation issues you may wish to discuss.

The information in this document does not take into account your personal objectives, financial situation or needs, and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.