Three ways to achieve your savings goals

Three ways to achieve your savings goals

It may be a holiday, a new car or a deposit for your first home, but having a short-term savings goal can be an effective way to get into the habit of saving – with the added benefit of achieving the goal.

But where do you start? First, you must decide how much money you will need for your savings goal (how much will that holiday really cost?) and calculate how much you need to save each month and how long it will take you to save that amount.

Next, you may need to rein in your expenses. The Australian Securities & Investments Commission’s (ASIC) MoneySmart guide recommends starting off by reducing your spending on non-essential items, such as entertainment, dining out, memberships or subscriptions.

Adjust your spending patterns

You don’t have to give up these daily luxuries completely, if you take the advice of Deborah Kent, owner of Integra Financial Services and NSW State Director of the Association of Financial Advisers. She suggests simply switching to low-cost social activities, such as walks with friends, seaside picnics or visiting art galleries and museums. Dining at BYO restaurants only can also be friendlier on the pocket, allowing you to meet your weekly or monthly savings requirements.

Spend cash

ASIC also recommends using cash – including EFTPOS or a debit card – when shopping, rather than relying on your credit card. This helps you stay on top of your spending and acts as a reminder to think about every purchase and decide if it’s a necessity or whether it can wait until your savings goal is achieved.

Research your savings options

You can achieve your savings goal faster with the help of added interest from a high-interest savings account or term deposit. A high-interest savings account accrues interest on the growing balance at a higher interest rate than regular transaction accounts, so it’s an option worth investigating.

UBank’s USaver account offers one of the highest maximum interest rates at RateCity currently, at 4.67 percent (available until December 31), while several other institutions offer maximum rates upwards of 4.5 percent. If your goal is to save $5000 by putting aside $200 a month, it would take you 25 months at 4.5 percent interest rate to reach your goal. You would earn more than $200 in interest over that period. If you can afford to save more each month, you will achieve your goal faster. But there are many competitive online savings products, so make sure you do your homework.

Term deposits are another convenient way to earn a higher interest on your money and reach your savings goal faster. They generally require a minimum opening balance – usually $5000 – and can last from 30 days to five years, with higher rates payable on longer periods.

Before you make a decision it’s important to assess your financial situation and shop around for the savings option that best suits your needs.

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about 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 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.

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

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.

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 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 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.

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 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.

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.

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.