Where to park your tax refund to get the best bang for your buck

Where to park your tax refund to get the best bang for your buck

The air is getting cooler and the sun is setting earlier. We all know what that means – it’s almost tax time!

If you’re one of the lucky Australians who’ll be getting a tax refund this year, you have a few places that you can deposit your dollars. But’s up to you and your financial needs to choose the most competitive option.

1. Put it in a high interest savings account

With virtually no-risk – putting your money into a high interest savings account can very easily help you grow your money over time.

According to RateCity research, there are savings accounts with rates as high as 3 per cent available. For most accounts, the maximum rate is only available if you follow the account conditions, such as making regular deposits into the account or not withdrawing funds. Otherwise your savings account can revert to a lower base rate.

This means that if you had a tax refund of, say, $1,500 and continued to make regular monthly deposits of $200 into a savings account accruing interest monthly, in 5 years you would have saved $14,672. This would make the total interest earned $1,172.

If you didn’t make regular deposits, however, you can still grow your savings. For example, if you took that same $1,500 tax refund and put it in a savings account with a base rate of 1.81 per cent accrued monthly, in 5 years you would have $1,642 – interest earned of $142.

As you can see, savings accounts can be an effective place to put your tax refund – if you continue to make regular deposits and earn the account’s max rate.

Major banks

Base rate

Max rate

Interest earned per month on
$10K

Conditions

CBA

0.01%

1.65%

$14

Monthly deposit of $200, no withdraw

Westpac

1.00%

2.30%

$19

Monthly deposit, account balance must have increased

NAB

0.50%

2.30%

$19

Monthly deposit, no withdraw

ANZ

0.01%

2.40%

$20

Min monthly deposit of $10, no withdraw

Market leaders

Bank of Queensland

0.50%

3.00%

$25

Monthly deposit of $1k

UBank

1.81%

2.87%

$24

Monthly deposit of $200

ME Bank

1.30%

2.85%

$24

Use linked trans account weekly

ING

1.00%

2.80%

$23

Monthly deposit of $1K

Rates accurate as at 9/05/2019

2. Turn to a term deposit

Term deposits are similar to savings accounts, however unlike the former you are locking away your deposit and are unable to access those funds for a set period of time.

These are also a low risk option, as a fixed rate means you’ll know exactly how much interest your money will accumulate regardless of changes in the market.

For example, if you took that same $1,500 and put it in a high rate 5-year term deposit earning 3 per cent, at the end of the fixed term you will have $1,725.

If you’re the kind of person who is prone to dip into your savings or not make regular deposit, a term deposit can be a competitive option.

Major banks

1-year rate

3-year rate

5-year rate

CBA

2.00%

2.00%

2.10%

Westpac

2.20%

2.30%

2.40%

NAB

2.10%

2.10%

2.20%

ANZ

2.20%

2.35%

2.45%

Market Leaders

Australian Unity

2.75%

3.00%

3.00%

Qudos Bank

2.70%

3.00%

Bank Australia

2.70%

2.85%

Rates accurate as at 9/05/2019

3. Pay off your credit card debt

When you receive a tax refund your first instinct can often be to spend, spend, spend. But what if you want to get on top of one or more debts?

Credit cards typically have higher interest rates than other debt sources, such as home loans or personal loans, which means that they can very easy get out of control if you’re not paying it down when you can.

If you’ve been slowly growing a credit card debt, it’s a good idea to try and get on top of it whenever you find yourself with a little more money thank you expected.

If you have a $5,000 credit card bill and are only making minimum repayments at 18 per cent, you can expect to pay $17,181 in total over 33 years. If you continue to only make minimum repayments but take $1,500 off your debt from your tax refund, you’ll shave 6 years off this time frame.

What if I have more than one source of debt?

If you’re wondering which of your debts to pay off first, the answer is simple – it’s generally best to choose whichever has the highest interest rate. It’s often a mistake to pay of the biggest debt first, such as your home loan, as something like a credit card will typically have a much higher interest rate and therefore a higher chance of causing your debt to grow out of your financial control. 

4. That being said… put it into your mortgage

If your home loan allows for lump sum payments, you could also consider putting your tax refund into your mortgage.

Making additional one-off payments can help you to reduce the cost of your loan, shave off some of the interest owed and also help you to repay the loan back quicker.

If you have a $500,000 home loan that you’re paying off over 30 years at an interest rate of 4 per cent, making a one-off lump sum payment of $1,500 from your tax refund will amount to $2,579 saved in interest over the life of your loan.

This means your $1,500 lump sum payment has grown into additional saving of $1,079 off of your home loan.  

Keep in mind that if your home loan has a fixed interest rate, you may not be able to make any lump sum or extra repayments without copping fees. Some other mortgages may also have a limit on the amount you can pay in additional repayments.

5. Donate it to charity

If you don’t measure your returns in monetary value, you could always donate your tax refund to the charity of your choice.

Charity comparison websites, such as ChangePath, are helpful resources to find not-for-profit that best meet your needs, as well as grade their transparency and financial sustainability.

And if you are so financially inclined – keep in mind that you can always claim tax on that charitable donation next year!

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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.

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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.

Are bank accounts frozen when someone dies?

Yes, Australian bank accounts are frozen when someone dies. If you want to close the account of somebody who has died, you might have to provide proof of death and a copy of the will. You might also have to prove your relationship to the deceased person.

If you have a joint bank account with somebody who has died, you will generally be entitled to all the money in the account. Again, you might have to provide proof of death if you want to change the bank account from a joint account to a one-person account.

Can I start a bank account online?

Yes, most lenders that operate in Australia will let you set up a bank account online. The process is usually simple and takes five to 10 minutes. 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 identification. Requirements differ from lender to lender, so some institutions might ask for more or different forms of ID.

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The basic information you need to deposit money into a third-party bank account is:

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  • Bank, building society or credit union (though this isn’t necessary)
  • BSB (or bank code, which is the branch identifier)
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Including the name of the financial institution isn’t necessary – particularly with online banking – because the BSB will identify this for you.

A handy tip is to record yourself (or add a personal message) in the transaction description or reference. This will show up on the recipients account, letting them know who’s paid them the money.

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.

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.

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.

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In most cases, you can close a personal or business bank account over the phone. In fact, this is the best way to ensure you’ve closed an account properly.

By speaking to a banking representative, you can capture and close out any pending transactions, or interest owing/payable on the account being closed.

In the instance where the account is a joint account, or you have multiple bank accounts you want to close, your bank may send you a form that you need to fill out and return.

Either way, you would be advised over the phone of the steps you need to take. Calling your bank ahead of closing an account is often a smart course of action.

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 Centrelink access your bank account?

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This is why it’s important to give true and matching information to all government agencies.

For example, if you report to Centrelink your annual income is $25,000, but at tax time you report your income as $50,000 with the ATO, it’s likely you’ll be ‘red flagged’.

At this point, Centrelink can legally request that your bank hand over your personal bank account details, to review your finances.

In most cases, Centrelink does not have the authority to take money out of your account. You will usually be given written notice to repay the debt.

However, Centrelink can also reduce your benefits until you’ve paid back what you owe. In extreme cases, Centrelink can garnish your wages and assets (including money in your bank account) until your debt is repaid.

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