Australians depending on this investment for income may be in for a marginal retirement - here are 3 reasons why term deposits may put investors at risk... 1. The good years are over - Nominal returns fell below 5% in 2013 and the long-term average isn't much better - from January 1989-2014, the average one-year term deposit rate was only 6.06%. 2. Inflation corrodes real purchasing power - Term deposits are yielding less than 2% once inflation is accounted for - and assuming a personal tax rate of 30%, these returns drop to approximately 1%. 3. Shares are riskier, but they don't need to grow much to beat a term deposit - Shares are more volatile than term deposits. However, an investment in shares only needs to grow 0.26% a year over five years to beat a 5-year term deposit yielding 4.46% pa. (VIEW LINK)
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