Leveraging Deposit Bonds for Smart Investing
As the year draws to a close and households begin to focus on the festive season, many investors turn their attention to financial planning. Deposit bonds, while not a new concept, are gaining renewed interest. These instruments allow investors to pay a fee to maintain access to their cash until settlement. A deposit bond provider issues a guarantee that the seller will receive the deposit amount at settlement, either from the client or, if necessary, from the provider themselves. These providers, backed by reputable insurance giants such as QBE, offer consumers and developers peace of mind.
Recent changes in the financial landscape have highlighted the utility of deposit bonds. In an era of historically low-interest rates, they were largely overlooked—why pay a fee when the returns from savings accounts were minimal? However, with rising interest rates and the resulting mortgage stress, deposit bonds present a valuable opportunity. Investing a property deposit in an offset account not only earns the investor more than the cost of the bond but also provides access to funds in emergencies.
There are two primary consumer groups for this product, each benefiting from its use in different ways:
- Convenience: Investors often face a tight timeframe between identifying an investment opportunity and the due date for the deposit. Delays in liquidating assets, transferring funds, or securing financing can lead to significant stress. Deposit bonds offer a solution by granting investors time until settlement to arrange their finances. Providers compete to offer the fastest approval processes, with some boasting same-day approvals for urgent cases.
- Strategic: Deposit bonds reveal their full potential as part of a long-term, off-the-plan investment strategy within a managed property portfolio targeting high-growth areas. The cost of the bond is balanced by the interest saved as cash remains in offset accounts or High-Interest Savings Accounts (HISA). This not only ensures liquidity in emergencies but also supports investors in pursuing growth strategies with financial comfort and flexibility.
Your financial circumstances and risk tolerance are crucial in determining how deposit bonds can support your property investment endeavours. For more information, consult with your inSynergy Specialist Investment Finance Broker to explore how these products can help you expand your portfolio and secure your financial future.