Q: I’ve just sold my house for $1.2 million and I’m going to wait for a few months before buying again. Where’s the safest place I can put my capital, get a reasonable (circa 6 per cent?) return and still get access to it if I see a house I want to settle on inside six months?

A: The decision should be determined by when you need access to the money and whether you can afford for it to fall in value. Because you plan to gain access to the funds within months, you need to be able to do so easily.

You would not have enough time for the money to recover losses, so investing in growth assets such as shares should be out.

Essentially, you have two choices: term deposits, where you are guaranteed a rate but are locked in to a time period; or a high-interest savings account. Citibank is offering 6.05 per cent over 90 days and 6.10 per cent over 180 days. Check flexible accounts as well, for your great convenience.

Don’t forget to include the impact of income tax. Bank interest is taxable income. For example, if you are earning $150,000 a year as taxable income, you will pay 37 per cent income tax plus 1.5 per cent Medicare levy (if you hold private health insurance) plus 1 per cent flood levy for every additional dollar earned in income this year.

So an advertised interest rate of 6 per cent per annum on $1.2m equates to an after-tax return of $10,890, or 0.9 per cent interest over three months.

This article was published in The Australian on 10 September 2011. A direct link to the article can be found here.

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