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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 The average amount withdrawn is $11,750.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 deferBills that may be deferred
Home loanRent
Car loanElectricity and gas bills
Personal loanPhone/internet bill
Credit card repaymentsHealth insurance
Business loansMemberships 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.

Did you find this helpful? Why not share this news?

This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.

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Learn more about bank accounts

How do you transfer money from PayPal to a bank account?

Transferring money from PayPal to an Australian bank account is simple. Just follow these three steps:

  • Go to your Wallet
  • Click ‘Transfer Money’
  • Follow the instructions

The money will take three to seven business days to reach your bank account.

Once you’ve made the transfer request, it can’t be withdrawn.

How do you set up a bank account online?

Once you’ve compared bank accounts and found the right one, the process of opening a bank account online is quite simple and can be done in around 10 minutes.

To set up a bank account online, you’ll need to prove your identity and provide an approved form of ID as well as your tax file number (TFN).

If you’re a new customer of the bank, you’ll need to verify your identity and potentially upload documents before you can complete your online application.

Once your ID has been verified and you’ve set up your bank account online, you should receive your bank cards in the mail along with your PIN and any other account details.

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 can I check my bank account balance online?

Checking your bank account balance online is a simple process. Once you’ve logged in to your online banking, clock on the relevant account and the balance should be visible.

How do I transfer money from Paypal to my bank account?

Transferring cash from Paypal into your bank account is simple…if you have a Paypal account that is.

Once you’re logged into your Paypal account, the account balance will appear on your home page. Below your balance are two options:

  • Add money
  • Withdraw money

Choose option two if you want to transfer money from your Paypal account to your personal bank account.

The next screen will prompt you to either enter new bank account details or choose a bank account that’s connected to Paypal. You can always add more bank accounts to your Paypal profile.

Another way to transfer out of Paypal is by jumping to the wallet tab on the top menu, and clicking ‘transfer money’. Both options will give you the same result.

How to transfer money to another bank account

Transferring money to another bank is often called a bank transfer, and it can be done a few different ways.

Customers generally need three pieces of information to transfer money to another bank account. Customers need the account name, BSB and account number of the account they wish to transfer money to.

One way of transferring money to another bank account is in a branch with the help of a staff member; they will often give you a receipt as well as confirmation of the transfer.

Transfers can be also made via internet banking and phone banking.

Some banks also allow customers to make transfers via partnered ATMs, especially if the account is with the same bank.

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.

How do I open a new bank account?

There are a number of ways to open a new bank account – online, over the phone or in the branch. The trick is to decide what type of bank account you want beforehand.

It might sound like a simple enough task, but there are literally hundreds of bank accounts to choose from. And each offer their own banking features and benefits.

A comparison site like RateCity can help you work out what bank account product matches your needs.

Once you’ve made up your mind what you want, it’s advisable to have the following information ready for the application process.

  • A couple of forms of identification (such as driver’s licence, Medicare card, passport)
  • Tax file number
  • Residential address, contact phone number and email (though email is not essential)

How do I open a bank account if I'm under 18?

The good news for savvy young folks like you wanting to take charge of your finances is that there are many bank accounts available for under-18s.

For bank accounts that require you to be 18 or older, you’ll have to rope in a parent or guardian to open the account for you.

Otherwise, you can apply by yourself online or at the branch of the bank, credit union or building society that has the account you would like to open. 

If applying online, you might be asked for a form of identification. For under-18s, this could be a Medicare card you’re listed on, your birth certificate and/or your current home address.

In most cases, you can verify your identity online (at the time of applying) or at the branch afterwards.

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 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.

Can I close a bank account with pending transactions?

You can close a bank account with pending transactions. But after the account is closed, any incoming transactions will be declined by your (old) bank.

The best way to ensure this doesn’t occur is to either wait to close your account until all pending transactions are complete, or contact the creditor and supply them with alternate bank details.

If you’re unsure whether you have any scheduled transactions, you can speak to a banking representative over the phone or via online support.

In most cases, your bank withholds the amount owing for pending transactions (such as online purchases).

Because the pending amount is deducted from your bank balance, you can close your bank account and the purchase will be honoured.

Which bank is best for business accounts?

Unfortunately, there’s no definitive answer to the question of which bank is best for business accounts. That’s because ‘best’ will differ from customer to customer, depending on their unique circumstances. These include not only your company’s financial position, but also its size, its age and the sector in which it operates. Another factor to consider is what features you want in a bank account. Your business may require different features than another business; and your business may require different features tomorrow than it does today.

The best thing to do is to thoroughly research the market before opening a business account. And when you do open an account, you should reassess your options every year or two, because the market moves quickly. A particular bank might offer the best account today, but be surpassed by one or several rivals tomorrow.