Savings accounts may become a much more attractive place to keep money as a result of the Federal Government’s current tax review, reports Jackie Pearson.
October 14, 2009
Tax and inflation are the traditional enemies of any serious saver. According to Treasury Secretary Ken Henry the effective tax rate (taking inflation into account) on bank deposits for a middle income earner is around 50 percent. That means for every $100 you earn in interest, $50 will disappear as tax.
That’s an excellent reason for making sure you shop around to find the most competitive savings account, with no fees and paying the highest possible interest rate. And there could also be some good news on the horizon as a result of the current Henry Tax Review.
Reward for safety
“We are excited that Mr Henry has confirmed that this review is trying to find a more efficient and fairer balance in the taxation of savings,” says Louise Petschler, CEO of Abacus, the organisation representing mutual credit unions and building societies.
“Deposit accounts in … banks, building societies and credit unions are the simplest, safest, most accessible and best understood savings vehicle yet they bear the heaviest tax burden,” she says.
Although much riskier than savings accounts or term deposits, shares and property investment are currently taxed at lower rates than bank deposits and Petschler is hopeful this anomaly will be addressed as a result of the current tax review.
The advantages of change
Abacus is arguing that lower levels of tax on savings accounts and term deposits could also have the following advantages:
- Make it easier to save a deposit for a home and so improve Australia’s overall home loan affordability,
- Help savers with relatively lower levels of wealth and income to build up their savings buffer, and
- Improve Australia’s overall levels of household savings so we can better cope with our ageing population.
Meanwhile, shop around
It is still several months before the outcomes of the Henry Review will be announced and transforming the recommendations into law could realistically take years.
That gives savers plenty of time to keep shopping around for the most competitive deals for their savings. Of the 367 accounts currently listed on RateCity, many pay no interest at all, even on a $20,000 deposit. However, one of the best accounts return up to 5.21 percent p.a . Comparing savings accounts is the only way to ensure you keep ahead of inflation and tax and achieve your savings goals.