Aussies find new ways to save as rates slip

Aussies find new ways to save as rates slip

Latest research shows that Australian households who are managing to tuck away savings each month are in the majority.

ME Bank’s latest Household Financial Comfort Report shows 51 percent of households are now growing savings each month, compared to 49 percent of households who struggle to save month by month.

Jeff Oughton, ME Bank’s consulting economist, said, “In the last six months Australian households have significantly reduced their overspending and increased their savings.”

A separate study by ING DIRECT shows that Australians are reaping enormous personal pleasure from growing savings.

According to ING DIRECT’s Financial Wellbeing Index, saving ranks as the nation’s preferred form of ‘spending’ cited by 26 percent of households. Spending on personal treats comes in a close second at 21 percent. Surprisingly perhaps, repaying debt (17 percent) ranks as our third favourite type of spending.

Vaughn Richtor, CEO of ING DIRECT, said, “These findings confirm that Australians have a serious commitment to improving their financial wellbeing by saving and paying down debt.”

“It’s not the sort of news that retailers like to hear but it is leaving households well-placed to weather any potential economic uncertainty.”

Savings may be a key starting point to build financial security but earning a decent return on your money can be challenging at a time when interest rates are at historical lows.

Two strategies are available, according to the experts. One is to use spare cash to make extra repayments on debt.

The rate that applies to debt – especially credit cards and personal loans, will almost certainly be higher than the return earned on savings and possibly other investments, meaning you have the potential to enjoy valuable cost savings.

Adding extra savings to your home loan or into an offset account linked to your home loan can also be a tax effective option for savers, but for more information about tax ask your account.

In fact, the ME Bank survey shows 56 percent of us are putting extra money into loan repayments while only 22 percent of households are investing in shares and bonds.

But as RateCity CEO, Alex Parsons, points out, “Australians often like to have the reassurance of holding a separate pool of cash savings they can draw on in an emergency.”

“This being the case it’s important so shop around using a comparison website such as RateCity and compare the rates offered on various savings accounts – especially high interest online savers,” he said.

Even a small different in the rate your money earns today can add up to a substantial gain over time.

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Learn more about savings accounts

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.

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

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 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 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.

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 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 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.

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.

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.

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 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.

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 direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.