Fixed interest investing - where is safe?

[Ptolemy]

Hi

I am in the process of selling my family house before a move to warmer climes next year with my family. We have decided to sell the house early rather than wait till next year when we believe the market will be worse, and plan to rent for a year and pay the rent with interest payments.

Now here's the problem. Where do we stash our cash for the next 12 months that is safe in this current market and gives us return which will alow us to pay the rent? I have heard the rhetoric that the NZ banking system is sound but have a some what uneasy feeling.

I also have some questions about Cash Pies. Having done a fair bit of reading on these they aren't as "risk free" as they are made out to be as the underlying assets are not secured. Since they are structured as unit trusts with term deposits in multiple institutions should one of the institutions that they are invested in should go under presumably this would result in less than a 100% return. Can anyone confirm this?

Any thoughts or discussion on this area would be much appreciated. Thoughts on best strategy, best institutions etc

Ptolemy
ms

[CAM]

I was looking at the Rabobank online account with effective interest rate of 9.42% for higher tax payers. There is a question and answer bit down the bottom that might provide some info for you. Just remember its Rabobank giving the answers.

Is anything really safe?....maybe Government bonds?..Kiwibank?

You could always spread your money over a number of areas/ institutions to minimise the risk of any failures and help you sleep easier.

Others will have a better idea of where and how than me.

[Snapper]

Kiwibonds?? Term deposits guaranteed by NZ government.http://www.nzdmo.govt.nz/publications/mediastatements/2008-09-26

[shasta]

Hi

I am in the process of selling my family house before a move to warmer climes next year with my family. We have decided to sell the house early rather than wait till next year when we believe the market will be worse, and plan to rent for a year and pay the rent with interest payments.

Now here's the problem. Where do we stash our cash for the next 12 months that is safe in this current market and gives us return which will alow us to pay the rent? I have heard the rhetoric that the NZ banking system is sound but have a some what uneasy feeling.

I also have some questions about Cash Pies. Having done a fair bit of reading on these they aren't as "risk free" as they are made out to be as the underlying assets are not secured. Since they are structured as unit trusts with term deposits in multiple institutions should one of the institutions that they are invested in should go under presumably this would result in less than a 100% return. Can anyone confirm this?

Any thoughts or discussion on this area would be much appreciated. Thoughts on best strategy, best institutions etc

Ptolemy
ms

The bigger issue here is why are you leaving Wellington? :eek:

Might be an idea to suss out a few convertible notes from the NZX debt market.

If you believe the underlying company is sound (say Telecom/Fletcher Buidling/Contact Energy) then you could get some high yields...

Remember that the interest is paid before shareholders receive any distributions.

There are associated risks, but worth a look

[Ptolemy]

[QUOTE=shasta;225685]The bigger issue here is why are you leaving Wellington? :eek:

My wife and I have long been working towards a lifestyle change to the Hawkes Bay. Had planned to leave the end of this year but investments have been smashed so another Welly winter for us.

Thanks for the responses so far. I have considered Kiwibonds, Banks Deposits, Cash PIEs and company bonds.

I suspect in the end my best bet is to invest in a combination of all. It has been a long tough year this year and have plenty of scars to prove it. The last thing we need is to lose the equity from our family house.

Anyone have any thoughts on the safest of the banks. My current thinking is that Kiwibank is kind of government guaranteed 9at least for the next 12 months or so), Westpac has strong balance sheet and moderate exposure to the housing market, ASB same. Any comment.

Although Raboplus has AAA rating (the highest in NZ), ratings have proved next to useless in the US meltdown. Should we be worried about European housing exposure?

[Ptolemy]

Seems everywhere is safe now....

[Deev8]

Seems everywhere is safe now....And the interest available on Term Deposits has fallen as a consequence. At the end of last week ANZ were advertising an 18 month term deposit paying 8.0%, today the same term pays 7.5%. Last week Rabobank paid 7.05% on a 12 month term and 7.85% on a 3 month term, today the equivalent rates are 6.50% and 7.45%.

[Lizard]

And the interest available on Term Deposits has fallen as a consequence. At the end of last week ANZ were advertising an 18 month term deposit paying 8.0%, today the same term pays 7.5%. Last week Rabobank paid 7.05% on a 12 month term and 7.85% on a 3 month term, today the equivalent rates are 6.50% and 7.45%.

Yes, seems some bank terms fell by up to 1% very quickly. Would be nice if there were more of those MAR010, SCF020 bonds for sale, but seems no sellers at the 10% level - I've moved a chunk of spare cash across to the finance companies for 18 months and hope to be able to sell my existing bonds back out at 7-8% rates in a few weeks to restore cash if needed.

Most spectacular NZ yield move.... the BNB010, going from 109% buyer to 85% in a few days... though I can't see that they get covered, but maybe indirectly helps?

[shasta]

Yes, seems some bank terms fell by up to 1% very quickly. Would be nice if there were more of those MAR010, SCF020 bonds for sale, but seems no sellers at the 10% level - I've moved a chunk of spare cash across to the finance companies for 18 months and hope to be able to sell my existing bonds back out at 7-8% rates in a few weeks to restore cash if needed.

Most spectacular NZ yield move.... the BNB010, going from 109% buyer to 85% in a few days... though I can't see that they get covered, but maybe indirectly helps?

Liz

You may as well go for the risky investments now, the Govt is covering Finance companies :eek:

[CAM]

Liz

You may as well go for the risky investments now, the Govt is covering Finance companies :eek:

I may be wrong....but I thought they were only covered if they applied for it AND were accepted.

[shasta]

I may be wrong....but I thought they were only covered if they applied for it AND were accepted.

You're right, although i do believe some finance companies have applied

[Deev8]

You're right, although i do believe some finance companies have appliedSo far I believe the following Finance Companies have applied for cover by the Deposit Guarantee Scheme:
AlliedNationwide
Equitable
General Finance
MARAC
New Zealand Finance
South Canterbury Finance
UDC

I'm sure that others will be making applications. The Reserve Bank says:

* We expect all institutions that meet the criteria will apply to be guaranteed.

* Those institutions that are eligible are:
a. all banks.
b. other deposit takers who have not breached their trust deed.

* We expect all eligible institutions will apply and will let its depositors know as soon as they are approved.

* We will post a list of approved/guaranteed institutions on our website – updated daily.

So far there are no approved/guaranteed institutions listed on the RBNZ website.

[arco]

ASB Bank has become the first of the big retail banks to be approved under the government’s retail deposit guarantee firm.

Wednesday, 5 November 2008

It joins Citibank, Kiwibank, Rabobank, SBS and TSB on the approved list.
ASB’s approval comes against a backdrop of rumours that the big banks opposed joining the retail scheme as their fees are essentially being used to allow finance companies to be covered by the scheme.
Under the scheme institutions with more than $5 billion in assets are being charged at 10 basis points which equates to many millions of dollars for banks while smaller institutions don’t have to pay a fee.
However, it now looks like the big banks are starting to apply to join.
Depositrates.co.nz understands that both Westpac and Bank of New Zealand have made formal applications, after indicating earlier that they intended to apply to join.
Westpac and ANZ National have yet to lodge applications.
The government announced on the weekend that it will offer wholesale funding guarantee to New Zealand banks.

http://www.depositrates.co.nz/news/976494588/asb-first-big-bank-to-get-guarantee.html

I was under the impression all NZ banks were covered - apparently not (yet)

[Xerof]

Arco,

be very careful though - only your first $1 million is covered at any one bank, provided it has applied for and received the guarantee :D:D

[Deev8]

Westpac and ANZ National have yet to lodge applications ... I was under the impression all NZ banks were covered - apparently not (yet)All banks are elligible for cover, but they have to apply for cover and be approved. The Treasury website has the definitive list of institutions that have been approved, and the list is regularly updated.
Deposit Guarantee Scheme - Approved Institutions (http://www.treasury.govt.nz/economy/guarantee/retail/approved)

Both Westpac and ANZ National say they have submitted their applications, but they obviously haven't got the formal approval from Treasury yet - that doesn't imply anything, the Treasury just take quite a time to process the applications.

[arco]

Arco,

be very careful though - only your first $1 million is covered at any one bank, provided it has applied for and received the guarantee :D:D

Bugger..............I'll have to spread it around a bit more then :)

[GTM 3442]

Fixed Interest Investing - where is safe ?

Choice of Govt Stock - safe but low yield
Bank Bonds - Unsubordinated
Corporate Bonds - Fletcher Building (9%) thru to Capital Properties (13%) thru to PPCS/Silverfern (20%).

And the punts like BBI (50%) or Fortress or PINZ

Sigh. So much to choose from . . . . . .

[Deev8]

The Treasury website has the definitive list of institutions that have been approved, and the list is regularly updated.
Deposit Guarantee Scheme - Approved Institutions (http://www.treasury.govt.nz/economy/guarantee/retail/approved)BNZ were added to the list yesterday, so it looks like the Treasury are slowly working their way through applications from the major banks.

[peat]

Why doesnt at least one bank who is capable of demonstrating its solidity to depositors rebuff this and avoid an unnecessary cost?

eg Rabo
or even ANZ actually (they recently said they have $50 bil in liquid assets and enough wholesale funding in place for a whole year even if the markets completely froze).

So why pay the govt money for a service you dont need?