How much should you spend on a ring?

How much should you spend on a ring?

Jennifer Hawkins’ engagement ring cost a reported $200,000, while Brad Pitt forked out a whopping $500,000 for Angelina’s diamond, according to reports.

But there’s no need to panic, because research shows that Australian women are thinking more about their financial future and less about the size of the diamond.

The study, conducted by online retailer oo.com.au, found that 70 percent of Australian women would like a great-looking engagement ring, but would prefer guys not to splash out on a really expensive rock so they can put the extra money towards saving for a house deposit or a honeymoon.

So how much do you think is reasonable to spend on an engagement ring?

At online forum, Vogue.com.au, this question sparked more than 500 comments, with varying responses.

One comment from “Kristina K” insisted that guys should spend no more than $5000 on an engagement ring: “Any more than that is money wasted… I’d prefer to pay off our place ASAP and have a $20,000 plus honeymoon”.

“Crystelle” said: “I know a girl who got engaged about three months ago. Her now-fiancé took out a loan of $40,000 to buy her the exact ring she wanted”.

While “Becca-Jayne” writes: “My engagement ring is gorgeous, I love it, and I don’t care how much it cost at all”.

Meanwhile, as part of the oo.com.au research, survey respondent Mark, 25, from New South Wales said: “I thought it was supposed to be three months’ pay. I don’t think my girlfriend would be happy if it was any less than that. Women seem to be so competitive when it comes to the size of their rock these days”.

Clearly a ring’s price tag can polarise opinion, but one thing most agreed on was that the cost of an engagement ring should be relative to a couple’s financial situation.

Financial planner Jeremy Vohwinkle said diamond engagement rings shouldn’t be a couple’s emergency relief fund. He urges couples to use a budget and save up to purchase a ring.

“Stay within your parameters and you’ll keep yourself out of debt,” he said.  

Savers can turn $1000 into $5000 within a few years by making regular deposits into a high interest savings account.

Alex Parsons, chief executive of RateCity, said despite a low cash rate, some institutions are offering bonus savings rates upwards of 4.5 percent, in return of meeting a few basic conditions such as making reqular deposits.

“If you’ve got a small amount to start with but are disciplined enough to add to your savings pile every month, then an online savings account can be a great option, he said.”

By depositing $1000 into a high interest savings account at a rate of, say 4.5 percent interest, and adding $200 per month, within two years the final balance will have grown to $5907. But if you can afford to save a bit more each month, say $500, you’ll reach your goal of $10,000 in less than two years. To work out how much you could save, try using an online savings calculator such as the one at RateCity.

So how much do you think is a reasonable amount to spend on an engagement ring?

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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.

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 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.

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 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.

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 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.

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

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 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.

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. 

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.

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.