Hare says holding the cash investment often comes at the opportunity cost of higher returns in the longer term.

"We've had clients come to us where they've had anywhere between $30,000, $40,000 to $150,000 sitting in cash," he adds. "Historically cash is a very safe investment but if you don't take on any considered risk – like property and shares – then the reward will be lower.

"Even the most competitive interest rates on savings accounts range from 2 to maybe 3 per cent. Compare that to the S & P/ASX 300 – the return was close to 6 per cent over the last five years."

For clients set on buying property in the next two to three years, however, keeping the money in cash is a safe option, he says.

How high-interest savings accounts compare.

"If they are adamant they want to own their family home, we wouldn't want our client to take on the additional risk of a market correction in the next couple of months and therefore not have that deposit."

Equity options

Story Wealth managing director Anne Graham agrees if an investor is looking to a buy a property soon, holding the money in cash is the best option.


"If you want to buy a house in the next 12 months but you want to invest the deposit [in the sharemarket], I would generally advise against it because that $100,000 deposit could be $70,000 if the market turns," she explains.

But if the investor is willing to put the money in the sharemarket for the next seven years or more, Graham says, then investing in exchange traded funds (ETFs) or other types of managed funds such as unit trusts are better growth options.

Keeping money in cash is not a bad option if you want to buy property in the next two to three years. Not for syndication

"Part of the deal in investing in the sharemarket is that you'll experience the highs and lows," she explains. "The worst thing is to panic and [sell when the market drops]."

Graham says ETFs and other managed funds can give investors exposure to the broader market rather than being wedded to one company or one sector.

She said investing in passively managed funds and ETFs will typically have lower continuing fees compared with actively managed funds, which generally have higher fees.

Managed funds also come with the advantage of being able to contribute as little as $100 at a time, she adds, compared with adding money into a listed ETF, which will incur a brokerage cost of $15 or $20 every time an investor puts in the money.

Super option for longer-term investors


For investors with a longer investing horizon, salary-sacrificing or after-tax contributions to superannuation are options, says Rice Warner's executive general manager of superannuation, Tim Jenkins.

Despite tax and compound interest advantages, though, Jenkins says contributing to super at a young age comes with the big downside of having the money locked up until retirement.

According to Rice Warner's research, about only 2 per cent of those under 30 make voluntary contributions to super.

"If you aren't going to spend the money, putting it in super might be marvellous," Jenkins said. "But once it's in, there's no getting it out [until retirement age], that's the issue."

One of few exceptions is the First Home Super Saver Scheme, which allows first-home buyers to take out up to $30,000 in extra personal contributions to super plus any earnings.

Under the scheme, first-home buyers can withdraw up to $15,000 of voluntary contributions made over a financial year, or up to $30,000 in total for all years, plus the earnings over those years.

The rules say they can withdraw 100 per cent of voluntary after-tax contributions, but only 85 per cent of voluntary before-tax contributions, such as salary sacrifice.

Cash options


If savings need to be held in cash for house deposits and upcoming purchases in the short term, there are a number of savings products available.

RateCity research director Sally Tindall warns against products from the big banks that offer lucrative "intro rates" for customers for the first three to five months, only to drop it to the base rate of 0.5 per cent.

"You might start with a great plan to switch every three to four months but for most people that's very unrealistic," she says.

RateCity's research shows the top five savings accounts offer maximum rates of between 2.8 and 2.9 per cent, but there are conditions such as making at least one deposit weekly or monthly.

Term deposits can be attractive to people who can't resist the temptation to dip into their savings, Tindall says. But the interest rate differences are marginal, as the best three-year term deposit offers only 3.05 per cent.

She notes that savings accounts of up to $250,000 are backed by the government (which means that the money is guaranteed in the event of bank failure). So savers shouldn't hesitate to go with smaller banks they don't normally bank with.

"People are quite loyal to brands but if you shop around you can get rewarded with a much higher interest," she says.

Tindall warns against keeping savings in transaction accounts, most of which have zero interest rates. "Even at 1.9 per cent inflation, it means your money is going backwards."