Good saving habits to continue in 2011

About this post

February 14, 2011

After decades of riding the economic boom and neglecting their savings accounts, Australians rediscovered their frugal side at the onset of the global financial crisis in 2008 and have continued saving ever since.

In 2010, Aussies banked their highest ever savings since 1987 as they reacted to economic uncertainty by reining in their spending. According to the latest Australian Bureau of Statistics (ABS) National Accounts figures published in December 2010, the rate of household savings grew to 10.2 percent in the September 2010 quarter, up from 8.9 percent in the previous three months.

Saving mood to continue
Economists predict household savings will increase further this year as interest rates continue to rise. The Melbourne Institute is forecasting two more rises to the official cash rate by the Reserve Bank of Australia (RBA) before the end of 2011, to 5.25 percent from the current rate of 4.75 percent.

"The household savings rate went up quite steeply during the global financial crisis," says Edda Claus, research fellow at the Melbourne Institute. "You would expect, with rising interest rates that savings will also increase."

Now is the time to save
Economists are not united on when the next RBA interest rate rise is likely to hit. The Melbourne Institute expects it to happen before March, while National Australian Bank is forecasting May. But one thing is certain: With further rises on the horizon, now is not the time to neglect your savings.

A smart option for boosting your savings is opening an online savings account. There are hundreds to choose from depending on your needs, but a good way to start is by comparing their interest rates on RateCity.

Currently, the online savings accounts with the highest interest rates are UBank's USaver and Virgin Money's Virgin Saver accounts, which both offer a rate of 6.51 percent. Because interest is calculated daily, more frequent deposits earn more in interest. For example, if you open a USaver account with a $500 deposit and add $200 a month for 12 months, you will save $3006.46 after 12 months.

However, if you deposit $100 each fortnight -  about same monthly amount - in 12 months your savings will reach $3223.41. In the monthly scenario, you would have earned $106.46 in interest, while fortnightly payments increase the interest earned to $116.62.



Related Savings Account Links

This is an information service. By browsing on the website and/or using our search tools, you are asking RateCity to provide you with information about products from multiple financial institutions. We will try to show you a range of products in response to your request for information. The search results do not include all providers and may not compare all features relevant to you, for further details refer to our FSCG. The rating shown is only one factor to take into account when considering these products. We are not a credit provider, and in giving you product information we are not making any suggestion or recommendation to you about a particular credit product. If you decide to apply for a product, you will deal directly with a financial institution, and not with RateCity. Rates and product information should be confirmed with the relevant financial institution, and you should review the PDS before you decide to purchase. See our terms of use for further details. This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.