Beware the high interest lure
Turn on the TV today and the chances are you'll be hit with reassuring adverts inviting you to invest in "first ranking debenture stock".
Tuesday, August 23rd 2005, 8:28AM
by The Landlord
You could be forgiven for thinking that your money couldn't be safer. But before you pile your life savings into Pacific Retail Finance, the company behind the adverts that keep capturing my attention, or any of the 80 plus other finance companies in the country, you need to ask some questions.In colloquial English, first ranking debenture stock is a term deposit, which, in turn, is an interest-bearing account offered by institutions such as banks, building societies and finance companies.
The interest rate is fixed for a certain period of time and, at maturity, you receive the interest, which may have been compounded over a period of time, and the amount invested is returned.
All up, interest.co.nz's research shows that people have more than $72 billion invested in retail term deposits. About three-quarters of that is at the four main banks. The remainder is with finance company debentures, building societies and other co-operatives such as the PSIS.
Rates of interest on term deposits vary hugely - often ranging from 4 per cent at the bottom end up to 12 per cent or more.
But investors often haven't a clue about the risk, thinking term investments are safer than the share and property markets.
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