Victorians are the best savers in Australia

Victorians are the best savers in Australia

RateCity looks into how Australians feel about their savings and why Victorians are shining over the rest of the nation.

August 11, 2010

Let’s face it, saving can be hard; it can sometimes feel like a vicious cycle of money going out as fast as it comes in. But the good news is that while the feeling is mutual between you and your neighbour, you can do something about it.

According to a recent report from ING Direct called the Financial Wellbeing Index, Australian households feel uncomfortable when it comes to their savings. The report, which surveyed 1008 households, showed that for the first half of 2010 Australian households scored an average comfort level of 3.6 out of seven (seven being very comfortable). Overall, this was the lowest score across the six financial wellbeing focus areas such as short and long-term debt and household income.

It seems that our savings are suffering as a result of many households opting to pay down their debts, such as mortgages and credit cards. Any spare cash that we do have, is decreasing fast with the median savings per household, including balances in transaction and savings accounts, as well as term deposits, is $6848 – a drop of $829 from $7677 in the first quarter of 2010, according to the ING Direct report.

Victorians are the better savers
The report showed that almost 31 percent of households are “very uncomfortable” about their savings, while only 14 percent of households are “very comfortable” with their personal savings.

Overall, 17 percent of Australian households have absolutely no savings at all. While these are likely to be low-income earners, 11 percent of households earning a higher annual income of $100,000 are also feeling the pinch with no reported savings.

When it comes down to which state’s residents are the better savers overall, Victorian households win hands down with a median balance of $10,910, while households in Queensland show the least amount of savings with a median of just $3630, according to the report.

Get your savings to a level you feel comfortable with
Easier said than done right? Wrong. Like most things if you put your mind to it, it can happen. In order to save, it just takes a bit of planning, changes to your spending habits, some dedication and you should see changes almost immediately.

Here are some simple ways that may help you to increase your savings to a level you are more comfortable with.

  •  Open an online savings account. Compare online and setup an online savings account that will earn you a higher interest rate than a standard everyday savings account.
  • Setup a savings budget. Work out a budget which shows what money you have coming in and what you have going out. From there you can work out a way to cut back and be able to put more aside into your savings.
  • Cut back. Look at ways you can cut back on your spending and put that money into your savings.

 

 

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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.

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 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.

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 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

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.

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

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.

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.

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.