A silver lining in the midst of rate cuts: financial awareness

A silver lining in the midst of rate cuts: financial awareness

Following the recent Reserve Bank of Australia (RBA) cuts to the cash rate – taking it to a record low of 1.00 per cent – the financial industry has been under intense media scrutiny.

Whilst some worry this has damaged overall consumer confidence, a more optimistic view brings to light a silver lining:

Financial awareness

The complexities of the industry can cause many a furrowed brow, with confusion often lying in the translation of acronyms known only to the financially literate.

When you take a moment to unravel the intricacies of finance, however, you will find yourself feeling more empowered than ever before.

With the RBA cutting the cash rate to the lowest in Australian history, now is a better time than ever to start looking deeper into your finances.

RBA cash rate changes over time

Data Accurate as of 25th July 2019

How do you achieve financial awareness?

#1 Be honest about your spending

Are you a disciplined spender that can manage their money easily, saving a little every week for a rainy day?

Or, are you more spontaneous with your spending, jumping at every opportunity to buy something new? Being transparent about how you spend money is crucial, as it impacts the financial products you apply for.

Let’s say for instance that Belinda & Isabelle are travelling to Fiji and are both looking to apply for a credit card to use whilst overseas that charges no foreign transaction fees.

Belinda has always been a diligent saver and has always had savings over $5,000 since she was 20-years old. Isabelle has always spent frivolously and has never had more than $500 in her account at any one time. They are both on a salary of $50,000/year and do not have any current debts.

Whilst they may both be approved for a credit card, Isabella could be more likely to incur additional fees as she is frivolous with her spending. This could cause some post travel depression when she sees the debt she has accumulated on her holiday.

The key with managing your finances is to be honest with yourself. If you cannot control your spending, think carefully before you sign on the dotted line.

#2 Bookmark financial tools that help you do the math

Financial decisions and comparisons can often involve complicated maths equations. Luckily, in this digital age, there are multiple free tools and resources that you can use online to do the math for you.

In the market for a new car? The RateCity car loan calculator can help you compare car loans without the complicated calculations. When you have a few car loans that you want to compare, just input the loan amount, interest rate, loan term and repayment frequency.

The calculator will then show you your estimated weekly repayments, total interest paid, total amount to pay, as well as showing you various loans from lenders in an easy to compare table below.

car loan calculator

Source: RateCity Calculator

Similarly, if you’re looking to buy a house, the Australian Securities & Investments Commission (ASIC)’s Mortgage Calculator is an easy to use tool with graphs that help you visualise your repayments. Rather than staring blankly at the screen trying to make sense of percentages and fees, this calculator simplifies the entire process.

When you have a few home loans you would like to compare, simply input the loan amount, interest rate, repayment frequency, length of the loan and account keeping fees into the calculator. ASIC will then show you a graph similar to that below, so you can visualise the repayments and see the amount of interest you will be paying over the length of your loan.

ASIC mortgage calculator

Source: ASIC Mortgage Calculator

Thankfully, there are a number of financial calculators online that you can use for free to compare financial products and make an informed decision on which is best for you.

#3 Take time to review key documents

Man worried about his financial situation reading the PDS

The Australian financial market can be confusing, especially when it comes to determining what lenders do, and how they differ. With a plethora of information to read on various financial products, comparing lenders may seem out of reach for the everyday Australian.

Different fees, conditions and interest rates can be charged depending on the financial product in question, as well as the lender’s evaluation of financial risk. The advertised rate you see on the lender’s website, for example, may not be the rate you are offered.

Affordability tests that analyse a borrower’s income, credit history and assets can lead to the development of what is known as a “personalised rate.” This means lenders can change the rates to match the financial risk they believe they are taking by loaning you the money.

In a similar fashion to the mindless acceptance of terms and conditions for various products online, many consumers do not carefully read the fine print when borrowing money.

As a consumer, make sure you always look at the Product Disclosure Statement (PDS) and the Key Facts Sheet to see any hidden fees, before signing on the dotted line.

Things to watch out for:

• Different lenders offer a variety of financial products, each with their own associated fees and interest rates, and the most competitive option is defined entirely by your financial situation.
• Finance is not a one size fits all model. With every lender having different terms, conditions and interest rates, you must do your research before committing.
• Fees and charges that apply to financial products may not be displayed on the main page where the product is advertised. Make sure that you download the PDS and Key Facts Sheet and research all associated fees and charges before you sign anything.

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Learn more about bank accounts

Can Centrelink access your bank account?

Yes, Centrelink can access your bank account, but only if you give them a reason to. Centrelink uses data-matching software with other federal government agencies to help it crack down on welfare cheats.

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.

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

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.

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 deposit money into somebody else's bank account?

One of the easiest banking tasks in the world is depositing money. You can even deposit money into someone else’s bank account if you wish.

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

  • Payee’s name
  • Bank, building society or credit union (though this isn’t necessary)
  • BSB (or bank code, which is the branch identifier)
  • Account number

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.

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).

Do you need a bank account to get a credit card?

To get a credit card, you need to show proof of income, which will almost certainly require you to have a bank account.

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.

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.

Do you need a bank account to sell on eBay?

You don’t need a bank account to sell on eBay. But if you don’t have a bank account, you must provide either a credit card or debit card.

How can I deposit cash into my bank account?

The traditional way to deposit cash into your bank account is to go to a branch and give it to a teller. These days, many banks will allow you to make deposits through an ATM as well.