How to prepare for the end of year splurge season

How to prepare for the end of year splurge season

While it might be hard to believe, it can’t be denied that the silly season is once again almost upon us.

With Christmas just over four months away, and the new year not far behind, for the smart spender, now is the time to plan ahead.

Australians typically love to whip out the credit card to cover extra costs during the December-January period. The downside to this is that when credit card bills are due in February, as a nation, we end up paying tens of millions of dollars in extra interest to our banks.

While paying for everything up front in cash in one go may not seem like an option, breaking down costs from now can see you start the new year with a clear financial slate.

Here are RateCity’s top tips for planning a credit-free silly season:

Review and estimate

The first step in planning is to try and estimate how much you will be required to spend come the end of the year on festive occasions. This should factor in everything from Christmas presents, Christmas lunch and social outings for special events. It may help to look at your credit card statements from last year to see where the bulk of your money went.

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When estimating spend for this year, see if you can downsize in any areas. For example, now that you have more time to look for Christmas gifts on sale, your total spend may be able to be reduced.

Once you have a good idea of how much you will be spending on each category, try and formulate a budget that you can stick to realistically using cash only.

Start present shopping early

While the thought of dragging Christmas present shopping out over several months may sound like the stuff of nightmares, keeping an eye on what sales are happening can save you a lot of money. If you know the sort of gifts you’re looking for, signing up to some newsletters to be notified when big sales are on will keep you in the loop.

For online shoppers, starting the search earlier on can mean you avoid paying excessive shipping fees to get the gift to you in time. The difference between express shipping an item and choosing the standard length of delivery can often be upwards of $10 so there are plenty of savings to be had for early birds.

Spread grocery costs

If you’ve been nominated to host Christmas lunch at your place, or are having relatives stay over for the festive season, your food and drink expenses will most likely rise through the roof come December. Spreading out the financial burden by adding one or two extra items to your grocery shop every week leading up to Christmas will cut the pressure to put it all on plastic at the last minute.

This strategy also allows you to take advantage of bulk buy specials for things such as soft drinks, biscuits and chips that can sit in the pantry until Christmas without a worry. Spreading out the cost of purchasing alcohol will also save you the later bulk expense of forking out for beer, wine and spirits when you may be running low on cash.   

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Learn more about savings accounts

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 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 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.

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 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.