The way forward in this low interest rate environment

Font Size:

The most common question retirees and pre-retirees are asking right now relates to interest rates and how to generate income from any cash deposits. Personal finance guru Noel Whittaker offers the following guidance.


What is going to happen in a world where interest rates look like staying low for years to come?

There are no easy answers, but I have long believed success requires you to follow some basic principles. A favourite of mine, as we face such uncertain times ahead, is that if you take care of the things you can control, you won’t need to worry too much about the things you can’t control.

The Reserve Bank dropped interest rates even further in early November, so how to find the best bank interest rates and how to best exist in a low interest rate environment.

To find the best rate, I suggest you search online using websites such as Finder, Canstar and RateCity. But keep in mind that rates change continually in the light of the banks’ cash position on the day. Furthermore, many so-called honeymoon rates may be good for six months, and then revert to the bank’s normal rate.

There may also be special conditions. Right now, my wife has an at-call account with St George Bank that pays a face rate of 0.20 per cent but which moves up to 0.70 per cent provided she deposits at least $50 each month.

But the bigger picture here is the role of cash in your portfolio. If you are extremely nervous, and have total financial assets of say $200,000, a difference of 0.5 per cent is only worth $1000 a year to you. That’s not much in the scheme of things. And changing banks continually to grab an extra 0.5 per cent is a mug’s game – you will pay more than you save by incurring extra fees and possibly a loss of interest while funds are being cleared.

If the sum is bigger, it’s not prudent to keep your whole portfolio in cash. Let’s face it – cash is the most expensive asset class you can own as it’s selling at 100 times earnings.

The obvious solution is to seek financial advice about a balanced portfolio, or simply do it yourself via an index fund such as Vanguard Australian Shares Index that currently has a yield of around 4.5 per cent. The cream on the cake is that the yield is mostly franked, so if you are retired with a tax-free income, you will get all the franking credits back. This would take an effective yield to close to more than 6 per cent.

I appreciate that shares are volatile, but by definition an index cannot go broke, and the index fund should keep on paying the dividends irrespective of the normal ups and downs of the share price.

And the great thing about shares is that you don’t need to outlay a massive sum. Let’s say you were rather risk averse, and your financial assets were $300,000 all in cash. You could simply leave $250,000 in cash, and put your toe in the water by investing $50,000 in an index fund. That huge cash buffer would give you plenty of time to ride out any falls in the stock market, and the investment in the index fund would give you great experience with shares.

Of course, if you’re on an Age Pension and are assets tested, every $10,000 you spend returns the equivalent of 7.8 per cent per annum via a reduction in assessable assets. So, instead of chasing an extra 0.05 per cent on your $200,000 cash portfolio, you could simply spend $15,000 on a trip, or home renovation, and get an immediate increase in your pension of $1170 a year. That’s much more fun than chasing a few more basis points on your term deposit.

Have you changed your income strategy given bank interest rates have bottomed out? Have you tried your hand at index funds or on the stock market? What advice do you have for others?

Noel Whittaker is the author of the recently released book Retirement Made Simple and several other books on personal finance. You can learn more at

This is an edited version of a blog that first appeared here.

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Join YourLifeChoices today
and get this free eBook!

By joining YourLifeChoices you consent that you have read and agree to our Terms & Conditions and Privacy Policy


Noel Whittaker on riding out the storm

Personal finance expert answers key financial questions from panicked Australians.

The problem with honeymoon rates – and beware this new scam

Noel Whittaker tells whether Joan should continue to hunt better bank interest rates.

Dos and don’ts when investing for the grandkids

What Noel Whittaker says about putting money aside for the grandchildren.

Written by Noel Whittaker


Total Comments: 4
  1. 0

    Some great advice here. ETFs and reducing assets by spending in one article!

  2. 0

    Deeming rate reductions should be a priority when the bank rate drops. Any interest earned today is taken away by Centrelink .

  3. 0

    Funny how advice to spend capital on luxury items like a $15000 holiday to get more pension is a good thing. Yet spending that same $15000 capital on a more comfortable regular life and not stashing it away to leave to other family members is not!

  4. 0

    The government needs to keep up to date with deeming rates AND they should be tied to a drop by the Reserve Bank – they should automatically follow the Reserve Bank’s moves.
    The deeming rate situation is just another rip off by the government.



continue reading


Mozzies biting? Here's how to choose a repellent - and how to use it

Mozzies biting? Here's how to choose a repellent (and how to use it for the best protection) Shutterstock Cameron Webb,...


Sir Bob Geldof on grief, fame and getting through it all

I've hardly started questioning Sir Bob Geldof before he is off on a long, sweary rant about everything he thinks...


Abandon Australia Day and choose the history we want to celebrate?

Australia Day is the anniversary of the arrival of the First Fleet in Australia. On 26 January 1788, 11 convict...


Speaking up for the disappearing art of listening

Columnist Peter Leith is 91 and describes himself as "half-deaf and half-blind". But he sees and hears a lot and...


Hyperpigmentation: How to tackle those tricky dark patches on your ski

There are plenty of great things about summer - sunshine, picnics and fruity cocktails immediately spring to mind - but...


Enthralling, dystopian, sublime: NGV Triennial has a huge 'wow' factor

Refik Anadol: Quantum memories 2020 (render) custom software, quantum computing, generative algorithm with artificial intelligence (AI), real time digital animation...


Where to eat, drink and play on Kangaroo Island

Australia's third largest island is an oasis of pristine wilderness, premium produce and hidden secrets ripe for discovery. Easily accessible...


Will you need a vaccination to visit Australian venues?

State premiers have suggested that once vaccinations begin in Australia, those without vaccinations may be banned from visiting some venues...