In the current climate of companies collapsing, government bailouts and stock market volatility the share market is not looking so attractive for short term investments. The simplest and oldest form of investment is looking to get back on top again - cash. Cash investments such as savings accounts and term deposits offer a known rate of return without the risks shown on the stock market.



Things have changed. The global credit crunch closed the tap on funds from wholesale markets, thus many financiers have turned to retail deposits to obtain funds for lending. In addition, soaring oil prices and higher inflation, share market volatility, and the spate of official interest rate rises have led to higher returns on cash investments.

Cash accounts are again in favour among investors, particularly two types: high interest savings accounts and term deposits.

Saving accounts: Currently its possible to get savings account rates earning around 7 per cent. The big increase in savings account rates for these products has made them very popular among savers. These online savings accounts are quite flexible, since they allow you to draw money at anytime you need the funds.

Some high interest savings accounts attract as much as 7.4 per cent interest, tax free. Savings account rates may be lower at 7.2 per cent for other offers, and these may be subject to 15 per cent tax, but this is still an improvement over the marginal tax rate and generates significant savings for you. Of course, while a low tax rate is great, having an account with zero-tax rate is even better.

Term deposits Another cash account that has increasingly gained favour is the term deposit. The volatility in the share markets have led many conservative investors into term deposits, which have much lower risks and offer more predictable savings account rates. The flight towards safer term deposits is particularly visible among owners of superannuation funds.

Term deposits are perceived as an attractive path to increasing the value of one's investments during these bumpy times. If you are currently trying to save up to you afford a deposit on a house then you reach your goal faster if you make use of the best savings account rates on offer.

For instance, one of the biggest credit unions in Australia has a 5-month term deposit product that gives 8.1 per cent per annum on a $10,000 minimum deposit. Your earning is maximised since the interest is calculated and added to your account daily.

Other banks offer 180-day term deposit with interest rate at 8.15 per cent, or one year for 8.1 per cent. If you don't want to lock your money away for too long then shorter terms are available such as one month or ninety day terms. The added advantage is that there may be no minimum balance required to open these term deposits.

Australia's Reserve Bank may make one further cut in interest soon but it's likely the rates won't move too far from current levels in the short term. Other than the current instability in the financial markets other factors such as lower bank overheads through online banking and a rise in competition are also helping to raise the offerings available for high interest savings products. These factors are likely to make savings account rates remain very competitive into the foreseeable future.