What's the best way to spend your bonus?

What's the best way to spend your bonus?

When we find ourselves with a little extra in our pocket, the urge to splurge can be overpowering for a lot of us, especially given how easy it is to shop online.

RateCity has compiled a few ways you can spend your bonus wisely and make your money work for you.

Save your bonus

While it can be tempting to immediately spend a bonus, putting your money into a high-interest savings account will help to keep your savings growing. Plus, it will help you reach your financial goals faster as the interest accumulates over time.

In the event of an unexpected occurrence, having a savings or emergency fund will give you the peace of mind that you are covered and you can access this money ASAP. Experts advise that the safest amount to have saved is three to six months’ salary.

Invest your bonus

Another way you could spend your bonus is by purchasing shares. Whether you’re new to the stock market, or you’ve been investing for years, buying and selling shares is an exciting way to invest your bonus. To buy and sell shares, you’ll need a broker. If you don’t have a lot to invest, consider using a discount broker, as full service brokers can charge three or four times the brokerage fees.

If you want to invest your bonus, but the idea of spending all of it on shares and brokers is a little intimidating, you could consider one of the many apps available that invest your money for you.

Acorns

Acorns is a popular investing app in Australia that utilises your spare change by investing it for you. Whatever small amount you spend, Acorns will round up that purchase to the nearest dollar and invest the difference. For example, if you spent $12.50 on lunch, Acorns will take 50c and store it in your portfolio for investment.

BRICKX

If stocks aren’t your game, apps such as BRICKX offer users a simple and low cost way to get into the property market. You are given a range of properties to choose from, and for under $100 you purchase a ‘Brick’ – a portion of the property. At the end of each month, users receive a share of the net rental income and you are free to sell your ‘Bricks’ at any time. You can grow and diversify your property portfolio for a fraction of the price of buying a house.

It’s also wise to invest in your future and make extra contributions to your super fund. ASIC advises that you can really boost your super savings by making after-tax contributions, as these payments do not get taxed. There is a limit to how much you can contribute to your super before you have to pay tax, and this information can be found on the Australian Taxation Office’s website. Most people can contribute up to $30,000, including your employer’s 9.5 per cent super guarantee contribution. For those 50 and over, you can usually contribute up to $35,000.

Pay off debt

You could also consider using your bonus to pay off any outstanding debt, such as a home loan. Making additional payments on your mortgage will help you to pay off the debt faster, as the extra payments are going towards the principal of the loan rather than the interest. However, if your home loan has a fixed interest rate, you may incur fees or have a limit on the amount you make in extra repayments, so it’s important you do your research.

You can use RateCity’s online calculator to work out how much interest you can save by making extra repayments.

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 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.

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 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)

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 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 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.

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.

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.

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 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. 

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