Where can I find the best interest rate on a fixed deposit?

2018-07-16 15:49
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Retired Fin24 user Ben seeks the advice of a personal finance expert on attaining a fixed monthly income from his living annuity investment and unit trust funds.

He writes:

As I turn 67 in November, I am thinking of selling my home and move nearer to my family at the Garden Route. I have a living annuity and other investments in unit trusts, but for the past 6 years, the growth on this investments was so bad.

I need a fixed monthly income to survive and think of a fixed deposit for 5 years or longer.

Lizl Budhram, Head of Advice at Old Mutual Personal Finance responds:

"I have a living annuity and other investments in unit trusts, but for the past 6 years, the growth on this investment was so bad."

The reasons for the disappointing investment growth need to be determined. Was there not enough diversification in the investment, or was the market timing just unfortunate, resulting in lower-than-expected investment returns? Or perhaps some other factors or a combination of factors?

What can be done to ensure reasonable returns and manage investor expectations (based on the risk/return balance as well as the investment time frame)? A skilled financial adviser would be able to add tremendous value by helping to answer these questions.

If the LA (living annuity) performance is also disappointing, it may be as a result of the draw down rate being too high. Consideration should be given to the investment strategy (is the investment strategy completely aligned to your requirements and risk appetite?) as well as to the appropriateness of the current draw down rate.

You don’t want to switch out of an investment and realise a loss, but you also don’t want to remain in an unsuitable investment fund.

"As I turn 67 in November, I am thinking of selling my home and moving nearer to my family on the Garden Route. I need a fixed monthly income to survive and am thinking of a fixed deposit for 5 years or longer. "

Bear in mind that an LA can be switched to a guaranteed annuity – this option should be explored in detail, as it could provide a fixed guaranteed monthly income. Regarding the proceeds of the sale of the property: a fixed deposit for five years is one option, which would then be able to provide interest income. Interest income is usually stable and there is low volatility risk.

It is, however, important to also bear inflation risk in mind. The interest income will not escalate, neither will the capital value. Alternative income generating investments should also be considered carefully, especially one that can provide capital appreciation as well as an escalating income.

This may mean adopting a higher level of investment (volatile) risk to counter the inflation risk. Tax implications (including estate duty and liquidity implications) of the various investment options on the tax position of the investor also need to be explored before a final investment vehicle and investment funds are selected.A reputable financial adviser will be able to provide valuable guidance on planning for your future wellbeing.

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