As the new tax incentives come into effect for savers, RateCity shows you how to make the most of them and save more money this financial year.
June 28, 2010
A new cycle brings a fresh start, so as we enter the new financial year, now is a good time to get your savings in order and start reaching those savings goals sooner.
In May this year, new tax incentives for our savings were announced in the federal budget, taking effect on July 1, 2011. This means you will pay less tax on the interest you earn from your savings, with the introduction of the new 50 percent discount on the first $1000 worth of interest earned in your savings accounts.
Pay less tax on your savings
For example, if you deposited $20,000 in an online savings account then deposited an extra $200 per month for one year with a top interest rate of 6.42 percent by UBank (RateCity's current top rate as at June 28), you could earn more than $1390 in interest.
With the previous tax system, if you earned $60,000 per year, which is the average wage, you would expect to pay 30 percent tax on the total $1390 of interest earned. This new tax incentive, however, means you will now only pay tax on half of the first $1000 of interest earned, so continuing on with our example above $500 worth of interest earned will be tax-free, meaning you will only pay tax on $890 of interest and save $150.
Take advantage of high interest rates
As many of us won't have a spare $20,000 cash laying around, the savings to be made from this tax incentive will mostly benefit those earning higher incomes and those that can afford to deposit a lot of money in their savings accounts. Regardless, if you earn less than $80,000 a year you can still benefit and may have the opportunity to save thanks to the good old theory of supply and demand.
The new tax incentive could ultimately lead to an increase in deposits of large sums of money into savings accounts, which may create more competition among financial institutions meaning a possible increase in interest rates. Savers should take advantage of the high interest savings accounts rates expected to continue during this new financial year.
Keep your eye on the deals available by comparing online to find an online savings account that will earn you a high return, such as UBank's USaver at 6.42 percent followed by RaboDirect's High Interest Savings Account at 6.40 percent or ING Direct's Savings Maximiser at 6.25 percent (as at June 28).
So no matter how much you earn, if you have a savings goal in mind that you want to reach, set yourself a budget and get the most out of your savings this financial year.