Is Australia the frugal nation?

Is Australia the frugal nation?

Will Australia’s frugal saving habits last? Andrea Sophocleous investigates.

December 1, 2009

When sales at top-end retailer David Jones are down while shoppers flock to budget-friendly Big W, you know something has changed in our attitude to money.

The global financial crisis – the only financial event to earn its own acronym, the GFC – sparked a wave of frugality among Australians that is still being felt as the economy slides into recovery mode.

Terms such as ‘stealth wealth’ (being discreet rather than flaunting your wealth), ‘recessionista’ and ‘frugalista’ (remaining fashionable on a budget), and ‘shrewd shoppers’ have entered our daily lexicon, but social observers are not so sure of the depth of this newfound thriftiness.

“Frugality has become a status symbol,” says social researcher Neer Korn, director of Heartbeat Research. “But it’s hypocritical. People are frugal in some areas but they spend big in other areas.

“Boasting about large purchases doesn’t feel right at this point in time, because you don’t know what circumstances other people are in.”

While this newfound frugality can be self-survival mechanism at times of financial hardship, Korn argues it was rearing its head before the GFC dealt its first blow. “Frugality was exaggerated by the GFC, but it was something people felt for a long time,” he says. “Mums, in particular, are delighted now that they can have an anti-materialistic focus. In research groups, mums boast about taking the family to the park and eating fish and chips rather than expensive outings.”

Sean Adams, managing director of research firm The Seed, thinks it’s unclear if Australians will hang on to their frugal ways once the economy recovers.

“Six months ago it felt as though things were changing forever, and people were fundamentally changing their values,” Adams says. “Now that the impact of the recession wasn’t as deep as we thought, people are feeling they didn’t need to tighten their belts as much.”

Nevertheless, Australians have been saving more as a result of the GFC, as shown by the growth is savings account customers. “Yes, there has been a stronger growth [in savings accounts] since the GFC,” says Commonwealth Bank chief marketing officer Mark Buckman. “Saving book spot balances grew $9.9 billion, or 23 percent, in 61 weeks from pre-crash compared to $1.8 billion (4.6 percent) for the same period length before the GFC.”

With over 500 savings accounts available for comparison on RateCity, there is bound to be one to suit your needs. Even better, you can earn a tidy sum in interest rates. Take advantage of the frugal mood and turn your spending habit into a saving virtue.


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Learn more about savings accounts

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 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 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.

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.

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.

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. 

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.

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.

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 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.

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.