How to maximise a pay rise

How to maximise a pay rise

So you finally did it: You prepared a few notes, sat down with your boss and calmly explained to them why you deserve a pay rise. To your surprise, they agreed, and you left the office with a little more spring in your step, thinking about the extra cash you’ll have in your bank account to play with. 

If this doesn’t sound like you, then what are you waiting for? According to the 19th Annual Salary Increase Survey, released February 19 this year, Australian businesses are planning to increase salaries by 3.6 percent in 2015. This indicates that more employers may be open to negotiating for something a little extra for their star employees. 

Of course, if you do get a pay rise, it’s important you do the right thing with it. While it can be tempting to start living a lifestyle that matches your new income – and the credit card usage it comes with – it might be a wiser idea to keep living like you never got that pay hike, and use the extra money to invest. Here are a few potential avenues for where you can put it. 

Shares and fixed interest

Depending on how large your pay rise is, you may not necessarily have a whole lot more money to play with. According to 2011 Census data, the largest share of households in Australia, or 12.6 percent, have an annual income between $78,000 and $103,999. For the lowest end of the scale, a 5 percent pay rise would mean an extra $3,900 in the bank — substantial, but not exactly an embarrassment of riches.

Fortunately, there are a number of assets that require a relatively low investment entry point. Shares, for instance, may only require a few thousand dollars, but they can net you a significantly higher return. However, if you don’t know what you’re doing, there can be a big level of risk involved. This is why most people use the services of a stock broker to buy and sell shares and we’d recommend getting advice before taking the plunge.

Aside from this, cautious investors without a large amount of capital can also look at fixed interest investments like government bonds, term deposits or cash. There are a variety of managed investment funds that deal in these types of assets, which can spread risk while also potentially netting you a stable, if lower, profit. 

Build up your equity

You might think of your home as a purchase, but it’s really an investment. If all goes right, in some decades time, your property could be worth substantially more than what you originally paid for it, which could be the key to unlocking a comfortable retirement. 

Rather than waiting until you’ve fully paid off your mortgage to make use of this equity, with the right home loan you can take advantage of it long before then. So consider using whatever extra income you get to make extra or larger repayments to your home loan. The wider the gulf between what you owe and what your property’s value is, the more equity you have to work with and earlier. 

Consider cash

No, we’re not talking about buying foreign currency. Cash investments are lower-risk, steady investment options where you can earn regular interest on money you put into a bank account. For most people, this means putting it into a regular savings fund. But there are also a number of high interest savings account options that you can use to get a higher than average return: a term deposit, for instance, or bonus interest accounts. 

Just be aware that if you’re hoping for a larger return, even high interest options may not net you the profit you want, given the prevailing low-interest environment.

Build up your super

At the end of the day, one of our largest savings goals is one thing: funding retirement. In that case, it may be wisest to go straight to the source and invest in your superannuation fund – meaning pay a little extra into your super savings. 

The Australian superannuation system offers a number of options for extra super payments:

  • You can make a salary sacrificing arrangement with your employer, where your pay rise is funnelled straight into super, and at a low tax rate of 15 percent
  • You can also make after-tax contributions that won’t be taxed upon being contributed to your fund.
  • These after-tax contributions need not only go toward your account – you can also put it into your spouse’s account.

With the latter, you can even claim a handy tax offset of 18 percent on contributions up to $3000, as long as your spouse is under a certain income threshold or not working. Remember that by paying more money into your super, you won’t only have a larger sum of savings, but this can increase exponentially depending on the fund’s investment performance.

But like all investments, there are risks involved. Talk to your financial adviser or account for more information about how these and other invesment options could work for your circumstances.

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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.

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

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.

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 


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.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

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.

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 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)

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.

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

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.