March 11, 2011
The governor of the Reserve Bank of Australia, Glenn Stevens, is urging Australians to keep their funds in savings accounts while the domestic economy adjusts to the mining investment boom. For Aussies following this advice, comparing high interest savings accounts can earn them hundreds of extra dollars a year.
"With a large boost to income, we need to think about the balance between saving and spending," Stevens said at a conference in Melbourne last month, "because we do not know the permanent level of the terms of trade."
For the general public, this sounds like the age-old advice of "saving for a rainy day", which many Australians already do in one form or another. For example, a typical household might put away 5 to 10 percent of their income into a separate savings account to hedge against loss of employment or other misfortunes.
Stevens announced that he is confident with the savings trends that Australians are showing at the moment.
"To date, that precautionary approach seems to be in place," he said. "Households are saving more than for some years and the much-discussed ‘consumer caution’ has been in evidence."
Your own cautionary savings plan
But what about those who have yet to adopt these "consumer caution" practices? After all, the temptation to spend during booming periods can easily distract from disciplined savings for most of us.
Firstly, you need to figure out how much you can afford to save. Forcing yourself to save half of your income when you can only spare a quarter will just add unnecessary stress to your weekly budget. However, you will still need to make tough decisions and cut spending to maximise your savings.
The next thing to do is come up with a realistic savings goal. For example, knowing that you want to save $7000 in a year will allow you to map out your deposits and help you plan to reach it.
And one of the most important things you need to decide on is your savings account. With hundreds in the market, interest rates and features can vary dramatically. For example, the difference between a 2.5 percent account and a 6.5 percent account for someone saving $700 a month over three years is about $1600 in extra interest earned.
Stevens is right about at least one thing: booms and good days don’t last forever, so while you’re living comfortably on spare cash, make it work for your future by finding the perfect savings account today.
Related savings account links