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Aussie personal wealth is falling, but you can still come out on top
Our personal wealth is declining, but you can make some simple changes that put you ahead today.
According to new research from Roy Morgan, the gross personal wealth (assets) of Australians was $9,784 billion as of the December quarter, 2018. This was a drop of $512 billion (5 per cent) from the September quarter; the lowest level recorded throughout 2018.
Roy Morgan research also found that net wealth (after debt) decreased from $8,993 billion to $8,608 billion.
Composition of Gross Personal Wealth – Australia
Source: Roy Morgan Single Source (Australia).
While the property market may be out of your control, there are a few simple ways you can increase your own personal wealth today.
- Super proof your savings by salary sacrificing
Salary sacrificing to super is an arrangement where you and your employer pay a nominated figure or percentage of your pre-tax salary into your superannuation account as an extra contribution.
Due to superannuation accounts using compound interest, the sooner you make additional contributions, the greater your personal wealth will be by retirement age.
These contributions are taxed at a rate of 15 per cent, which is an appealing prospect given that it is lower than most people’s marginal tax rate. Also, salary sacrificing allows you to reduce your taxable income (if you earn more than $37,000 a year).
- Park your savings in a high interest rate account or term deposit
If you want to grow your personal wealth through a lower-risk option than the property market, consider squirrelling away some of your savings into a high interest savings account or term deposit.
High-interest rates are intended to help you save, not spend, so they typically reward customers with their max rates if they make regular deposits and/or limit the number of withdrawals made.
High interest savings accounts
Market leaders | Base rate | Max rate | Interest earned each month on | Interest earned each month on | Conditions |
Bank of Queensland | 0.50% | 3.00% | $25 | $63 | Monthly deposit of $1k in the prior month, available for balances up to $250k. |
CUA | 0.50% | 2.90% | $24 | $60 | Monthly deposit of $250, no withdraw allowed. |
UBank | 1.81% | 2.87% | $24 | $60 | Monthly deposit of $200, total balance of all accounts connected must be less than $200k. |
ME Bank | 1.30% | 2.85% | $24 | $59 | Must use linked transaction account weekly. |
Bank First | 0.05% | 2.85% | $24 | $59 | Monthly deposits, no withdraw allowed. |
Source: RateCity.com.au
Term deposits work similarly to savings accounts, with one major difference; your savings are locked away and cannot be touched for a set time frame while they accrue interest. They are seen as a low-risk investment option.
When choosing a term deposit, the interest rate is one of the most significant factors to consider. The general rule of thumb is that the longer the term, the higher the term deposit rate.
For example:
John has saved $5,000 and doesn’t want to be tempted and dip into his savings, so he looks into locking this away in a term deposit.
He chooses a 2-year term deposit, that pays an interest rate of 2.30 per cent annually.
After two years he has earned $232.64 in interest on his initial $5,000 deposit.
High interest term deposit accounts
1-year | 3-year | 5-year | ||||
Market leaders | Rate | Interest (1yr, $20K) | Rate | Interest (3yrs, $20K) | Rate | Interest (5yrs, $20K) |
Australian Unity | 2.75% | $550 | 3.00% | $1,800 | 3.00% | $3,000 |
Teachers Mutual Bank/ UniBank | 2.80% | $560 | 3.00% | $1,800 | – | – |
Qudos Bank | 2.70% | $540 | 3.00% | $1,800 | – | – |
QBANK | 2.60% | $520 | 2.90% | $1,740 | 2.90% | $2,900 |
Source: RateCity.com.au
- Reduce your superannuation fees
As Warren Buffett once warned “remember, your fees are their income”.
A lot of Aussies don’t and making the wrong choice could be costing them tens of thousands of dollars over their working lifetime.
Do a little research on your own super fund to find out the contribution fees, admin fees and/or indirect cost ratio you may be paying as this is money out of your pocket and into the pocket of said fund.
Fee level | Contribution fee | Admin fees (p.a) | Indirect cost ratio (p.a) |
Low | 0% | $50 | 0% |
Low-medium | 0% | $50 | 0.3% |
Medium | 0% | $50 | 0.6% |
Medium-high | 2% | $0 | 1.3% |
High | 4% | $ | 2% |
Source: ASIC superannuation calculator
Disclaimer
This article is over two years old, last updated on April 20, 2019. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent bank accounts articles.
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