$46 billion under the bed: Australians lose out by stashing cash

$46 billion under the bed Australians lose out by stashing cash

The time for Australians to break your piggy bank and open a high interest savings account is now, reports Jack Han.

Australians have more cash than ever before, according to a Bankwest report, which shows that the amount of cash held in wallets, purses and money boxes across the country remain at a record high. The only concern is that these thousands of dollars are gathering dust under the bed, instead of earning you valuable interest in a savings account.

The Bankwest Cash Report 2009 discovered that a record $46 billion in coins and notes were circulated this year. It analysed data from the Reserve Bank, Australian Bureau of Statistics and the Australian Payments Clearing Association.

This figure translates to about $2,092 for every Australian, which is $900 more than a decade ago, putting doubts on concerns that Australia is a cashless society.

Bankwest Business CEO Paul Clark commented in the Herald Sun that this cash surge has occurred despite the global financial crisis.

“The amount of cash in our society has risen 71 percent over the past 10 years, despite the online boom that’s seen businesses and consumers conduct more than two billion electronic transactions last year worth nearly $12 trillion,” said Clark.

The Federal Government’s $12.2 billion stimulus package is believed to be one of the key causes of the cash flood, along with historically low interest rates, which incites consumer spending.

Clark also believes that “…many people started hoarding cash during the crisis,” citing that at the peak of the downturn in October 2008, cash in circulation rose by $2.3 billion, the biggest monthly rise ever recorded.

While hoarding cash is a safe measure during a financial collapse, the fact that our economy is on the recovery path calls into question whether having so much cash lying around can actually be costing you money.

By keeping $2092 at home rather than in a high interest savings account, you could be missing out on $107 in interest per year (with a rate of 5.0 percent p.a.) If you instead invested $2,092 per year into an online savings account, you could walk away with $11,833 at the end of five years (based on a rate of 5.0 percent p.a.).

Think about other ways that you can save by putting your cash to use, such as paying off debts or making advancements on your bills. Now is the best time to be comparing savings accounts, because you will likely see more and more competitive deals as interest rates rise.

The piggybank may have been the safe option during uncertain times, but now it’s simply draining your savings potential. Break it open, and start enjoying the high interest you deserve.


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Learn more about savings accounts

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria