Boost your savings with four simple tips

Sweet-toothed Australians were tipped to spend a combined $185.7 million over the Easter long weekend, up 5.2 percent on last year, with chocolate, seafood and short getaways set to boost spend.

Now that the sugar high has abated, for many of us it’s back to work and back to good savings habits – research shows household savings have climbed to their highest levels in three years.

Financially astute consumers are increasingly realising the importance of having a savings buffer in case of emergency, with at least three months’ salary the ideal amount to have tucked away, ING Direct’s latest Financial Wellbeing Index shows.

According to the report, the average Australian household has $11,798 in their savings account – up 21 percent on last quarter and 37 percent more than a year ago.

But it falls just short of our savings goals, the survey found. Based on the national median salary of $70,365, the desired savings buffer is $15,200.

To bridge the gap, survey respondents said they intend to cut back on discretionary spending and follow a stricter budget, with 15 percent planning to take fewer holidays this year, 41 percent following a stricter budget and a third dining out less often, ING Direct reveals.

If you’re among the 29 percent of Aussies who already contribute to savings each payday, then good on you! If you’re among the 21 percent who wants to set a savings goal, here are some simple tips to help get you started.

1. Start at the end

Find a reason to save – a new car, your first home or a holiday – and make it your motivator. If a photo of a tropical island on your computer or phone screen helps you to save for a holiday, do it.

The key is to make saving fun, rather than it feeling like a chore, said financial advisor Deborah Kent, owner of Integra Financial Services.

“But never set a goal that’s too long. Set short-term goals so you can attack it in chunks – it’s more manageable that way,” she said.

2. Watch it grow

Once you’ve decided on a goal it’s time to figure out how to achieve it by putting a savings plan in place. Getting into the habit of making regular savings – even if the amounts are small – can be more effective and motivating than doing so on an ad-hoc basis. Use a site like RateCity to compare savings accounts and consider setting up a scheduled transfer into your saver to take place a few days after your salary goes into your account.

3. Banish bad debts

Debt is a concern for many Australians thanks to a range of factors including easy access to credit cards and a tendency to spend more than we earn, says Paul Clitheroe, chairman of the Australian Government Financial Literacy board.

“A key starting point in getting control of debt is to know exactly what you owe. You’d be surprised how many people don’t have a firm rein on their credit card balance or home loan,” he said.

Give your finances a “health check” and consider refinancing any products that aren’t offering competitive rates or aren’t working for your circumstances. Doing so could free up a couple of hundred dollars to add to your savings plan or help pay down debt.

4. Keep track and reward yourself

Finally, remember saving isn’t about depriving yourself so budget in a small reward whenever you reach a savings milestone so you have something to work towards.

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Learn more about savings accounts

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 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. 

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 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.

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

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.

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.

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

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.

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.

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 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.