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 The average amount withdrawn is $11,750.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 can I find bank accounts in my name?

To find ‘live’ bank accounts in your name, you’ll have to ask individual lenders, which involves contacting them one by one and proving your identity each time. To find ‘unclaimed’ bank accounts (those that have been inactive for at least seven years), you can use this website.

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.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can a debt collector garnish my bank account?

A debt collector can garnish your bank account, but only with a court order. This drastic action is usually taken only if you’ve ignored several notices asking you to pay the debt.

If this happens, there is nothing you can do to stop it other than immediately pay back your what you owe in full or make arrangements to pay it off in installments.

Once a garnishee order is issued, your bank will put a freeze on your account as it processes the order. This usually takes two to three days and you won’t be able to access any of your money during this time.

If you have Centrelink payments, they may be protected, depending on what the court order says.

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 set up a bank account online?

Most Australia-based lenders will allow you to set up a bank account online. Requirements vary from lender to lender, but you will probably need to provide a passport or birth certificate, as well as a driver’s licence, Medicare card or another form of secondary ID.

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.

How do I close my bank account online?

You can usually easily open a bank account online, but you often can’t close it online.

Many banks and credit unions will only let you close an account if you go into a branch or call them on the phone.

However, some banks will let you request to close the account via your internet banking. Check your financial provider’s website for details.

Just remember: If you still have funds in the bank account, transfer them to another account, or withdraw the cash. Also, if you have any payments like direct debits going in or out of the bank account, these will also stop when you close your account.

Can I open bank accounts for my children?

A common question for new parents is, ‘Can I open a bank account for my child?’

The short answer is yes – as a parent you can open a bank account for your child.

Once you’ve compared your options and found a bank account that suits your needs, the process is relatively simple.

As the bank account is for your child, you’ll need to provide some documentation such as proof of ID, including your tax file number.

You will also need a copy of your child’s birth certificate, and in some cases you may also need to sign a guarantee of indemnity.

Depending on the bank and whether you’re an existing customer, you may be able to open a bank account for your child online. However, you may still need to go into a branch to prove your identity.

Can you open a bank account at 16?

Yes, you can open a bank account at 16, or even younger. If you’re 13 or under, you will probably need a parent to accompany you to a branch.

Can debt collectors take money out of your bank account?

Many people find themselves struggling to cope with debt at one time or another. In these cases, a debt collector could contact you to demand payment for a debt, to explain the consequences of you failing to pay a debt, or to organise alternative payment arrangements.

If you’re contacted by a debt collector, you may be wondering what their rights are and whether they can take money out of your bank account.

Creditors cannot access money in your bank account unless a court order (also known as a ‘garnishee order’) is made to allow creditors to recover debt by taking money from your bank account or salary.

If this happens, the creditor can take money out of your bank account unless you pay the debt in full or make an alternative payment arrangement such as paying in instalments through the court.

How do you open a bank account in Australia?

Opening a bank account in Australia is usually a straightforward process. Some banks give you the option of opening an account online, while others require you to visit a branch.

Different bank accounts offer different features, so it’s best to compare your options to find one that suits you.

All banks require you to pass an identity check to open a bank account. Australia uses the 100-point identification system, which means you’ll need to show a number of forms of ID that, together, add up to 100 points.

Common ID types include a driver’s licence, passport, Australian visa in a foreign passport, and Australian Medicare card. You’ll find out what types of ID are accepted when you go through the sign-up process online or at a branch.

Once your account is open, you’ll be given or sent a debit card that you can use to make purchases and withdraw money from your account.

How do I open a bank account for a child?

There are few better ways for a child to learn about money management than through savings. And there’s a plethora of bank accounts designed specifically for young people and children.

A bank account for a child can be opened online, over the phone or in a branch in a few easy steps. The minimum age a child can open a bank account for themselves usually ranges between 12 and 14.

If the child is too young to open the account, you can do it for them as their legal parent or guardian. 

To do this, you would need to be over 18, have an Australian residential address and currently reside in Australia (or have proof of residency).

You would also need to provide:

  • Identification for yourself and the child
  • Your tax file number (TFN) or TFN exemption

Depending on the bank account, you might be able to choose what level of access the child has to their bank account (online and via the phone).

What do I need to open a company bank account?

To open a company bank account, you will probably have to provide 100 points of ID, an ABN and an ACN. You will probably have to provide the details of all signatories as well.