How to save more as the cost of living rises

How to save more as the cost of living rises

RateCity uncovers the higher costs of living and shows you that it is possible to alleviate the effect on your savings.

May 12, 2010

If our outgoings increase and our wages remain virtually the same, it does not take a mathematician to work out that your savings will be affected. The Australian Bureau of Statistics (ABS) recently released its consumer price index showing alterations in prices for March. It listed eleven major groups of goods and services which contributed to an overall increase of 2.9 percent for the March quarter compared to the same period last year and a rise of 2.1 percent over 2009.

The most dramatic price rises for the March quarter this year compared to the March quarter of 2009 were:

  • Housing up 6.1 percent
  • Education up 5.7 percent
  • Health up 5.1 percent
  • Transportation up 4.1 percent
  • Alcohol and tobacco up 3.5 percent
  • Financial and insurance services up 2.0 percent

Compared to the December 2009 quarter, the ABS found a massive jump in the cost for pharmaceuticals by 13.3 percent in the March quarter, vegetables were also up by 10.3 percent, electricity up by 5.9 percent, petrol by 4.2 percent, deposit and loan facilities 3.4 percent, hospital and medical services by 2.9 percent and house purchases 1.2 percent. No wonder we are finding 2010 a tough year on our wallets!

Your savings don’t need to suffer
As the costs of living increases savers will rely more on their savings accounts to help ease the pressure so it is important that they are in order. To assist in lessening the sting of rising costs, here are some tips that may help you get the most out of what savings you do have and help you to save more long-term:

  • Compare online. If you are currently getting a lower rate then perhaps it is time to make the switch and get more for your dollar. By comparing rates online you can make certain you are receiving the best possible interest rate with your savings account. For example currently RateCity’s highest rate online savings accounts are ING Direct‘s Savings Maximiser and Bankwest‘s TeleNet saver both at 6 percent.
  • Use online comparison sites for other products such as your mortgage or car insurance. You could find yourself with a few hundred dollars extra in your savings account by switching your car insurance premium.
  • Shop smarter and be aware of your options. Look at ways you can save more, for example if your favourite wine or beer increases in price, perhaps buy it in bulk as opposed to per bottle or why not try some cheaper labels, clear skin bottles sell for a couple of dollars each – you might be pleasantly surprised and you will save!

With prices increasing it doesn’t mean that you have to cut back on spending altogether, it just means that you need to be more aware and smarter with your choices and look at ways that you can cut back to reduce costs. As a result you will save more and your savings account will be a lot healthier for it.

 

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Learn more about savings accounts

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.

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 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 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 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.

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.

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 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 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.

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 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.