The great divide – how COVID is hurting some families and helping others

The great divide – how COVID is hurting some families and helping others

When it comes to the financial impacts of COVID-19, there are two narratives emerging amongst Australians: those who are being hurt by COVID-19, and those being helped.

For those being hurt, the ramifications may be felt for many years, even decades to come. However, there are some crucial tips that may be able to offer some relief. For those being helped, there are still ways they can use this time to their advantage.

How households finances have been hurt by the pandemic

The latest unemployment figures from the Australian Bureau of Statistics (ABS) show that almost a million Australians (7.4 per cent) are out of work. Meanwhile, 3.5 million Australians are now receiving JobKeeper payments to help keep heads above water.

Those who still need a helping hand have been able to dip into their superannuation, with the latest Australians Taxation Office figures showing 2.75 million unique applications have been approved, totalling $30.2 billion. The average amount withdrawn is $11,750. This in itself may have seriously negative impacts on an individual’s final balance.

In terms of personal debt, 800,000 households have had to pause their mortgage repayments due to hardship, according to the Australian Banking Association. Further, the latest ABS figures show new personal loans increased by $182 million from April to May, up 14.5 per cent month on month.

Tips for families financially hurting due to COVID-19

If you’re struggling to keep on top of your bills, you’re not alone. But it’s not just mortgage holders who have been offered relief by banks. In fact, there are a range of debts and bills that households may be able to request be deferred for hardship reasons.

1. What bills households can take a break from paying right now

Loans banks may defer Bills that may be deferred
Home loan Rent
Car loan Electricity and gas bills
Personal loan Phone/internet bill
Credit card repayments Health insurance
Business loans Memberships and subscriptions

Keep in mind that you will generally need to provide evidence that you are struggling financially with these repayments, such as evidence you’ve lost your main source of income or are now on a reduced income.

Also, remember this is not free money. You will eventually need to pay this back, and if you’ve been accruing interest on your deferred loans, the total cost now may be higher.

If you are in a position to make any repayments, try and pay what you can, even if it’s not the total bill. Further, consider negotiating with your bank or provider. You may be able to switch to a lower cost service.

  • For a full list of hardship relief support offered by your bank, please visit the RateCity Relief page.

2. Reducing the impact of a mortgage repayment pause

If you’ve deferred your home loan repayments, you may be shocked to find that your repayments are potentially higher. This is because your mortgage would still have been accruing interest even while your repayments were paused.

The cost of a repayment pause extension on a $500,000 loan:

Loan balance after the 10-month pause $514,477
Increase in monthly repayment after pause $128
Extra paid over life of loan $12,211

Notes: Based on an owner occupier paying principal and interest on the average rate of 3.43%. Calculations assume a borrower is 5 years into a 30-year loan with a loan balance of $500,000 when they defer for 10 months and that the loan term remains the same. People who are further into their loan may pay less. People who increase their loan term may pay more.

Here are some tips that may help reduce the impact of a mortgage repayment pause:

  • Try and pay off some of your loan during the pause.
  • When the pause finishes, see if you can make extra repayments to catch up.
  • Negotiate a lower interest rate with your bank and if possible, try and put any savings from the rate reduction back into your mortgage.
  • Call an independent financial advisor or a financial counsellor for advice. The National Debt Hotline is: 1800 007 007.

3. Potential alternatives to pausing mortgage repayments:

  • Switch to minimum repayments: customers making higher repayments on their loan may ask their bank to adjust their repayments to the minimum to free up cash.
  • Use your redraw facility: if you are ahead on your repayments you may be able to access them via redraw (fees may be charged).
  • Request a rate cut: variable rate customers can ask their bank to lower their home loan rate. While banks typically don’t allow rate changes for fixed rate customers, if you are in financial stress, it’s still worth asking.
  • Switch to interest-only repayments: many lenders will let you only pay the interest on your loan for a period of time. While it will reduce your monthly repayments in the short term, your interest rate is likely to increase and by not paying down your debt, you will pay more in interest charges over the longer term.
  • Reduce repayments temporarily: instead of going on a full repayment pause, see if you can reduce your repayments. While this can potentially add thousands to your mortgage, it’s likely to be better than going on a full repayment holiday.

If you’re now considering refinancing to a lower-rate home loan, or one that offers more flexibility, you’ll want to ensure you do your research around which loans are the most competitive. Here are some low rate home loans to start you on your refinance journey:

How households have been helped financially by the pandemic

Credit card debt is at record lows, as restrictions on travel have prevented many Australians from spending money and accumulating debt. According to the latest Reserve Bank of Australia figures, in April and May Australians wiped $3.2 billion off debt accruing interest.

And with more Australians at home, bank deposits are on the rise. According to the Australian Prudential Regulation Authority’s data, between April and May Australians had $9.6 billion more in their bank accounts.

For those with children, the government’s childcare support meant that no families paid costly childcare fees from April 6 to June 13.

Tips for families being helped financially by COVID-19

For some families, COVID-19 has actually helped them save money through:

  • Not paying childcare fees (day care/pre-school/OOSH)
  • Reduced transport/petrol costs
  • Not eating/drinking out
  • Not getting regular beauty treatments
  • Not paying for children’s extracurricular activities like sports/dance/swimming
  • Record low home loan interest rates or falling rents

With that $9.6 billion now sitting in Australian’s bank accounts, some households may be wondering what they can do with their new savings.

You may want to put some of the money you have into a savings account as a financial buffer to help you through any tough times ahead. With no word on how long the COVID-19 pandemic will last, making a rainy-day fund isn’t the worst idea.

If you have outstanding debts, now may be the time to consider chipping away at them. Whether you have a credit card to pay off, or want to get ahead on your home loan, paying down your debts can make a real difference to how much interest you pay in total. If you’ve got multiple debts, experts generally recommend starting with the debt with the highest interest rate first.

Further, you may also want to consider renovating or upgrading your home. Investing your savings back into your home may add value to your property in the long run. Further, you may also be eligible for the $25,000 grant for home renovations on offer from the government.

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Learn more about bank accounts

How do I overdraw my Commonwealth Bank account?

Overdrawing a bank account can happen by accident. It’s often hard to know what your balance is, particularly with direct debits, scheduled repayments and pending transactions competing for cash.

To avoid being stuck with a bank fee every time your account is overdrawn, you can apply for a personal overdraft. This will enable you to overdraw your account up to an approved amount.

A personal overdraft is connected to your CommBank Everyday Account, so you can enjoy easy access to extra funds once approved – anywhere from $100 up to $20,000.

Your overdraft funds can be accessed via your CommBank keycard or Debit MasterCard, or online through NetBank and the CommBank app.

To apply you can either call the Commonwealth Bank directly or visit your local branch.

How do I open a bank account for a baby?

If you’ve just welcome a new baby into the world, congratulations. Opening a bank account for your child can be a wonderful first gift.

Before you can open your child an account, you’ll need to have a birth certificate or passport for your baby.

As the parent or guardian, you’ll also be listed as a joint holder on the account. This means you’ll need to have proof of your identification and address (a driver’s licence, passport, birth certificate or Medicare Card).

Many banks and credit unions offer baby banks accounts. Usually, you can apply online; otherwise you can head into a local branch or office with your documents.

Can I open a bank account in another country?

Despite having a bad rap for facilitating tax evasion, it is possible and legal to open a bank account in another country, also known as an ‘offshore account’.

Some people choose to open a bank account in another country to invest overseas, for higher interest-earning potential or to access foreign banking services.

The process for opening an offshore bank account differs depending on the financial institution and country in which you’re opening the account.

Typically, you will need to provide identification such as a passport, a local bank statement and a signed declaration proving the source of the money being used to open your account. Usually, deposits into offshore accounts can be made by international money transfer.

Can you open another account at the same bank?

Yes, you can open another account at the same bank if you already have an account there, but some banks place a limit on how many specific accounts you can open.

Generally, though, it is possible to have more than one everyday account, one personal account and one joint account, or have different types of accounts – such as a transaction account and a savings account.

Keep in mind that some bank accounts come with fees, so you could be charged twice for having two types of the same account at the same bank.

Also, if you have more than one high-interest transaction account at the same bank, only one account will be able to earn the highest rate of interest.

How can I wire money to a bank account?

You can wire money to an Australian bank account either through your own bank or by using a money transfer company such as Western Union or MoneyGram. Either way, you’ll need the other person’s name, BSB number and account number. If you use a money transfer company, you might also need to provide the recipient’s address for large payments.

How do you open a bank account under 18?

If you’re under 18 and you want to open an Australian bank account, you will need your passport or birth certificate. (Some lenders might require just a Medicare card or driver’s licence.) You can apply online or at a branch. If you’re 13 or under, you will probably need a parent to accompany you to a branch.

Can foreigners open bank accounts in Australia?

Many Australian lenders allow foreigners to open bank accounts in Australia. Often, this can be done before you arrive in the country – with no Australian address required. When you get to Australia, you can pick up your debit card, using your passport as identification.

Can I link a bank account to Paypal?

Paypal is a safe and convenient way to pay online without the need to share your financial details. You can send and receive money or accept credit and debit cards as a seller using Paypal.

It’s easy to link your bank account to a Paypal account and start making transactions within minutes.

To start, you first need a Paypal account (it’s free to join). When setting up your Paypal account, you will be prompted to link a credit card or bank account (or both if you wish).

PayPal works without a balance; you can use Paypal to shop or send money when your balance is zero.

When your Paypal balance is zero, Paypal will ask you to choose your preferred payment method at the checkout.

This could be either your linked bank account or credit card. Your bank details can be updated if you change banks or credit cards.

How do you find a bank account number by name?

For privacy reasons, Australian banks won’t hand out account numbers or other details about their customers. However, if you provide a bank with a BSB and account number, they should be able to confirm if those numbers belong to one of their customers.

How do I close a bank account?

Closing a bank account is one of those tasks that’s easy to put in the too-hard basket. There are quite a few steps involved, some which may require you to hang on the phone for a while.  

Here’s a handy checklist of items to tick off, so the job gets done quicker. If you don’t do your banking online, the following steps can also be done at a branch.   

  • Cancel any scheduled or recurring payments
  • Update your direct debit details (such as loan repayments) with creditors
  • Export your payee address book (to keep a record of saved third-party bank account details)
  • Transfer the balance of your account (to the new bank account)
  • Close your account online, or by calling the bank or visiting a branch

Can you get a payday loan without a bank account?

Yes. Some payday lenders are willing to transfer loans to prepaid debit cards instead of bank accounts.

Can foreigners open bank account in Australia?

If you’re migrating, studying or working in Australia, you’ll be pleased to know that you can open an Australian bank account. For the most part, opening a bank account in Australia is a simple process which starts by comparing the types of bank accounts foreigners can open in Australia.

Once you’ve found a bank account that suits your needs, you can start the application process.

When you apply for the account, you’ll need to provide proof of ID which may include your passport, overseas ID or credit card. You may also need to provide a copy of your visa and proof of address in Australia.

Depending on the bank and the type of account you choose, you may be able to apply for the account online or over the phone before you arrive in Australia.

Can I find my bank account number online?

Yes, you can find your bank account number by logging into your online banking and clicking on the relevant account.

How long does it take to open a bank account?

The length of time it takes to open a bank account varies, depending on whether you want to open it online or in person.

Online

Most banks and credit unions have simple online applications that usually take no more than 10 minutes to fill out. It can be especially fast if you have your identification documents like your driver’s licence and passport handy. Sometimes you will instantly be approved and the bank account opened. However, depending on the financial institution, it may take a day or so to be processed and your account number issued. Your account information and ATM or debit card will then be mailed to you, which usually takes between five to 10 days.

In person

If you decide to go into a branch or office to open a bank account, it may take about half an hour. Make sure you bring your identification documents with you. Also book an appointment if you can, otherwise you might be forced to wait in line. Sometimes your ATM or debit card will be issued on the spot, otherwise you’ll need to wait for one to arrive by mail, which usually takes between five to 10 days.