Investors abandon bank deposits

Investors switching to shares and property

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 8, 2013 12:59 pm AEDT

Australian investors are diverting their cash into shares and property and abandoning the banks, according to the latest Westpac-Melbourne Institute quarterly survey.

Just 35% of Australians regarded banks as the best place for their funds in December, down from 39% in September.

With the Reserve Bank of Australia (RBA) cutting official cash rates twice since September, deposit rates have been falling. The average rate on a typical cash management account has fallen from 2.2% to 1.7%, already lower than inflation.

At the same time, the grossed-up dividend yield on Australian shares means they provide a better rate than term deposits and cash accounts, and have done for some months now – according to AMP's Shane Oliver.

All four major banks provide better dividend yields on their shares than bank deposits. Australia and New Zealand Banking Group (ASX: ANZ) offers a dividend yield of 5.9%, Commonwealth Bank (ASX: CBA) 5.5%, National Australia Bank (ASX: NAB) 7.3% while Westpac Banking Corporation (ASX: WBC) offers a dividend yield of around 6.4%, and all are fully franked.

The proportion of Australians who think shares are the best place for their hard earned cash has risen from 5.5% to 6.3%. Australians' love affair with property also continues with 24% nominating real estate as the best place for their funds – the highest level in seven years.

With low mortgage rates and rental yields increasing, loans to property investors have increased 19% over the past year, according to data released by the Australian Bureau of Statistics. Several analysts are expecting a recovery in housing in 2013 buoyed by low rates and a lack of supply of new houses.

The Foolish bottom line

Here at the Motley Fool, we've long argued that high dividend paying shares represent a better opportunity for investors than bank and term deposits. Not only for the dividends, but the capital growth as well – in 2012, the ASX 200 index had risen 14% or closer to 19% with dividends included.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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