Brought to account
Since our two girls were born (aged 4 and 17 months), I have put $50 a week into separate accounts for them. Our four-year-old has more than $7000 in her account and our other daughter has $2000. We paid tax on the interest. As the accounts are becoming quite substantial, what is the best way to invest it for their education? R.G.
Insurance and friendly society bonds are basically tax-paid managed funds, with a fairly high rate of tax at 30 per cent a year before the returns are declared, but are poor performers and I'm not keen on them. Some specialise in saving for education expenses but they can be inflexible and, again, I don't recommend them.
While you continue to be signatories on the children's accounts, the money will continue to be taxed in your name. For long-term investments such as these, I prefer a mix of term deposits and direct shares, focusing on blue-chip stocks offering a franked dividend, or a top managed fund such as Perpetual's Industrials fund or the Fidelity Australian Share fund.
If you plan to adopt this strategy, I would wait a few months. I suspect sharemarkets may get volatile.
Term rates for super
In a recent column, you wrote: ''If you shop around, there are some reasonable term deposit rates being paid within super funds.'' Where can one find out about these? P.P.
For fixed-rate returns in a super environment, Defence Bank has been offering the best returns. Its retirement savings account (RSA), which is a super fund in the form of a deposit account, is offering 4.75 per cent for six months, and 4.5 per cent for 12 months. (All these rates are before 15 per cent tax for accumulation funds, untaxed for pension funds.) By comparison, the Commonwealth Bank's Superannuation Savings Account is offering just 2.45 per cent for one year, rising to 2.85 per cent for five years.
You can roll money between any standard super fund into and out of these RSAs.
Looking at term deposits within super funds, Colonial First State offers access to CBA term deposits via its FirstRate Term Deposits. These range from 3.95 per cent for three months to 3.75 per cent for 12 months for the retail First Choice Super Fund, rising 0.25 per cent for the First Choice Wholesale Super Funds.
OnePath is offering ANZ term deposits from 4.5 per cent for three months to 4.55 per cent for five years through its OneAnswer and OneAnswer Frontier super funds.
All of these RSAs and term deposits are protected by the government guarantee up to $250,000 per individual per institution and are net of fees.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.
Morning & Afternoon Newsletter