Savers have two fundamental goals: preserve their capital (money) and achieve the best return possible. With record low interest rates in Australia, we wanted to offer our clients the opportunity to access a secure and stable option with a better rate than most bank accounts.
That’s why we created Stockspot Savings. Here are some common questions about it:
- What is Stockspot Savings?
- What is a high interest cash ETF?
- What are the benefits of Stockspot Savings?
- How clients are using Stockspot Savings?
- How does the high interest cash ETF pay interest?
- Why does the capital value of Stockspot Savings move around?
- Why does my Stockspot Savings balance show a negative number?
What is Stockspot Savings?
Stockspot Savings is an alternative to a high interest savings account, designed for cash savings you don’t want to invest in your Stockspot Portfolio.
Rather than deposit money with a bank or buy a term deposit, Stockspot Savings will place your money into a high interest cash Exchange Traded Fund (ETF). You get access to the best interest rates from the big banks without having to lock away your savings for months or years.
You can find out more about Stockspot Savings in our helpful factsheet.
What is a high interest cash ETF?
Stockspot invests into the BetaShares Australian High Interest Cash ETF (ASX: AAA). It is an exchange traded fund (ETF) that deposits investor funds into a portfolio of at-call bank deposits, notice deposit accounts and 30-90 day term deposits with major banks.
Stockspot Savings provides a competitive interest rate because Betashares (the ETF provider) negotiates a higher interest rate to what you would likely be able to as an individual. The current banks used are National Australia Bank, Bendigo and Adelaide Bank Limited, Bank of Queensland, Rabobank, Bank of Tokyo-Mitsubishi UFJ, and JP Morgan Chase Bank. The Australian banks must be APRA regulated depositary banks.
The BetaShares Australian High Interest Cash ETF pays income monthly to clients (around the middle of the month). The interest rate can change and often does when the RBA announces interest rate changes. Unlike a term deposit, investors in this ETF not locking their money away for a set period of time; they can access it whenever they choose.
The high interest cash ETF fee fee charged by BetaShares is 0.18% per year. This fee is an indirect cost to you as it comes out of the ETF unit price (i.e. interest rate is net of fees). The interest rate you see on your account already has the ETF management fee deducted from it. Stockspot does not charge any additional fees in Stockspot savings.
Importantly, Stockspot Savings is not the same as placing money directly with a bank, so is not identical to an everyday savings account. Rather, it is a managed investment scheme pooling money invested in a fund and seeks to obtain competitive interest rates.
What are the benefits of Stockspot Savings
Stockspot Savings offers many benefits over other alternatives like term deposits and bank accounts. These include:
- No lock in periods
- No termination/withdrawal fees
- Low administration set up and costs
- Secure and safe as deposits are with banks regulated by APRA
- No introductory rates
- No hidden fees or charges, small print or onerous terms and conditions
- Fully accessible with daily liquidity
How clients are using Stockspot Savings?
Clients have been using Stockspot Savings in many ways, but some of the more common strategies we are seeing are:
- Rainy day fund – good for people who need to save for short term goals or the use for an emergency fund
- Alternative to a high interest bank account – for people who don’t want to shop around for the best bank rate each month which sometimes requires making a monthly deposit and using a debit card a certain number of times.
- Ease of transfer and control – some clients leave a balance in Stockspot Savings and then gradually dollar cost average this amount into their Stockspot Portfolio using the Transfer feature. This provides greater control over timing of when we invest as Transfers from your Stockspot Savings to your Stockspot Portfolio actioned by 10am are usually able to be invested on the same day.
How does the high interest cash ETF pay interest?
The high interest cash ETF pays interest in the middle of each month to whoever owns units at the start of the month. The interest is paid directly into your Stockspot-linked cash account.
Why does the capital value of Stockspot Savings move around?
The high interest cash ETF has an ex-distribution date, which is the first working day of every month. On this day, the unit price will fall by an amount similar to the ‘ex distribution’ (interest). This is normal and similar to any other ETF. It reflects that people who owned the ETF yesterday were entitled to last month’s interest whereas people who buy it today will need to wait until next month’s interest.
As the interest accrues through the month, this builds into the ETF’s value and is represented by an increase in the ETF price throughout the month. This can be seen in the graph by the steady climb in the unit price.
Then once it reaches the ex-dividend date (i.e. the peak point in the graph), the price will fall back down to reflect that you need to wait a month to receive the next interest amount. That is, over the course of the month its price increases until it pays its distribution and its price drops a corresponding amount. This happens to stop people from buying in mid way through a month and expecting to receive a full month’s interest.
Why does my Stockspot Savings balance show a negative number?
The high interest cash ETF will sometimes appear to show a negative capital return during the month. This happens between when the ETF owes you interest (i.e. goes ‘ex’ distribution) and when it pays your interest in the middle of the month. Rest assured that the dip in high interest cash ETF unit price will be offset with the interest payment once it arrives in your account on the Payment Date (middle of the month).
For example, you might have deposited funds into your Stockspot Savings on the 25th of the month and we bought units in the high interest cash ETF at $50.10. A few days later, the ETF goes ‘ex distribution’ of 5 cents per share and the price of the Stockspot Savings ETF drops to $50.06.
The dip in high interest cash ETF unit price of 4c will be offset with the interest payment of 5c once it arrives in your account on the Payment Date (middle of the month). The difference between the 5c you receive and the 4c that the ETF fell by will mean that for this first month you only received a partial interest payment to reflect that you were only invested for part of the month.