Making the most of your money in a low interest rate environment

Published on: August 13th, 2020

Depending on your current life stage and financial goals, today’s low interest rates may be advantageous, but for those who are more reliant on cash, such as retirees, it can have a significant impact on income.

Here are our top tips for making the most of your money in a low interest rate environment.

Pay down debt now

If you have personal debt, such as a mortgage or personal loan, low interest rates give you an opportunity to pay it down quicker. It’s important to remember that although your minimum repayments will likely be lower in line with the interest rates, paying the amount you can afford rather than just the minimum is the best strategy to reduce the life, and therefore, the cost of your loan.

Look at your investment options

Leaving money in the bank, particularly in this environment, will give you tiny, if any, returns. Maintaining a level of cash can still be beneficial though. Firstly, it is safe and secure in the event of a downturn and secondly, it is available to take advantage of investment opportunities that can present themselves.

Low interest rates can be a positive for shares and property, so it can be worth looking at investing in other asset classes. Although the share market has been volatile of late, low interest rates do typically have a positive impact, often increasing the valuation of companies, and, as more investors look to move from cash to shares, this can drive up the market.

Buy property

While the direction of the property market remains a little uncertain in the wake of COVID-19, if you were already in the market for a property, buying while interest rates are low makes sense. You can use this period of low interest rates to build equity in the property faster by following the strategy of paying more than the minimum repayment, as outlined above.

Invest in your future

You might also consider putting more money into your superannuation, which allows you to invest for long-term growth in a diversified manner, building funds for your retirement. It is important, however, that you ensure you have structured your super to weather financial storms.

Ensure your risk profile is aligned with your goals

Changing your investments can change your risk profile, and it’s important that this remains aligned with your financial goals and life stage. Younger investors who are further from retirement are likely in a better position to consider higher growth options which typically come with more risk. Those in or nearing retirement will most likely need to take a more conservative approach as they simply don’t have as much time to make up for any losses.

If you have a trusted financial adviser, it’s critical that you discuss any moves with them in advance to make sure it is the best one for you, and if you don’t have an adviser, now is the perfect time to start a discussion.

Make sure you retain access to emergency funds

Although money in the bank won’t generate a material income, it is critical that you retain easy access to emergency funds, particularly with today’s economic uncertainty.  Yet, according to a recent report by ME Bank, 34% of Australians have less than $10,000 in savings, and, alarmingly, 21% have less than $1,000.

We typically recommend that you maintain access to the funds to cover six months of your basic living expenses in the event of income loss. There are ways you can do this to make the most of the money while still retaining access, such as keeping funds in a mortgage offset account.

At the end of the day, how you make the most of your money in a low-interest environment really comes down to your personal situation and goals. We’ve helped more than 3,000 Australian families on their financial journeys, and we’d love to help you on yours.

Get in touch today to find out how we can help you live for today while planning for tomorrow.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.