Start your summer holiday savings now

Start your summer holiday savings now

September 4, 2009

With record low overseas air fares across the country, your dream holiday may be just around the corner with a smart savings plan. Jack Han reports.

Now that spring has arrived, Australians are starting to think about saving up for the summer season and the promise of a relaxing holiday. However, the right savings plan could mean the difference between lounging on white sandy beaches and settling for a sunny spot in the backyard.

Tourism Research Australia is forecasting outbound trips made by Australians to decrease 1 percent in 2009 to 5.8 million – the first drop in six years .

This has been attributed to rising unemployment and the recovering economy, which has seen Australians reduce their spending habits. Many are also hesitant to take time off work when unemployment is expected to increase.

This will deal a big blow to expensive destinations such as the United Kingdom, which is expected to see a decline in Australian visitors of 7 percent compared to 2008.

However, the costs of travelling to foreign destinations have reached many record deals recently, with return flights from Sydney to London costing around $1,400 , and the infamously expensive Sydney to Los Angeles trip has been scaled back to less than $1,000 .

So what can you do to take advantage of the cheap holiday season? The important thing is to start saving right away, and set up a savings account specifically for your goal so that you don’t become tempted to dig into the funds.

By putting away just $100 a week, you’ll be able to afford return overseas flights by Christmas. And if you’re looking after a tight budget, the most popular destination remains to be New Zealand, where the cheapest flights are below $300 .

How about if you wanted to save for a bigger holiday next year? This is where finding the best savings account can help you pocket valuable dollars for your trip.

For example, let’s take Angela, who wants to save up $5,000 for a summer holiday at the end of 2010. This will cover all of her accommodation, airfares and insurance needs for at least three weeks, but she doesn’t want to use any of her existing savings to travel.

On today’s highest online savings account of 5.11 percent, Angela could open a UBank USaver account and achieve her goal by only depositing about $75 per week for the next 16 months.

On low interest savings accounts of around 2 percent, Angela would need to save $80 per week for the same goal. At the end of her 16-month savings plan she would return two-thirds less in interest than the UBank account, which is about $62 compared to $158.

Therefore, by taking the time to compare for the best account, and sticking to a savings plan, Angela will be able to maximise her return and secure the bonus rates offered by online savings accounts.

Saving for a holiday should be as relaxing as the vacation itself. Many online savings accounts will plan your savings goal for you, so the hardest thing for you to do is picking your paradise escape.

 

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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.

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. 

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 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.

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

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 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 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.

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

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 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 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.