The Cost of Cash

posted on February 1st, 2015 by Bellmont Research Team

In preparation for a recent presentation I came across a chart that had fallen off my radar, the RBA Cash Rate Chart. Given its basic name its one that is easily overlooked but a chart that is well worth keeping an eye on.

Here is the most recent version published by the RBA (the cash rate is now 2.25% after the RBA decision on the 3rd Feb 2015).

Australian Cash Rate

We can clearly see that the current cash rate it sitting at all time lows (now 2.25%) . What’s interesting to note however is that in 2014 for the first time since the GFC the Real Cash Rate (the cash rate less inflation) dipped below 0. We are currently just sitting at 0. This posses an interesting dilemma for investors. If your holding cash your return when factoring in inflation is minimal. When you take into consideration tax, accounting costs, SMSF costs etc then your faced with negative returns on cash. With the expectation for further rate cuts these negatives returns will increase.

For those investors who are over exposed to cash they will continue to be faced with negative returns. It will be important for investors to be aware of the cost of cash and for advisers and accountants to be informing their clients of the real rates of return after inflation and costs.

For more information on this chart and others produced by the RBA please see the link below.

http://www.rba.gov.au/chart-pack/index.html



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