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When saving too much is losing you cash

When saving too much is losing you cash

Jack Han investigates the myths about stashing your cash.

October 14, 2009

You will often hear the advice, “the more you save, the more you earn”, but is that necessarily true? Can putting too much into your savings account be bad for you, or is it just a myth that retailers want you to believe?

The current household saving ratio is 4 percent, which means that on an average $48,000 salary, Australians are saving $1,920 a year. If we compare this to big savings goals such as paying a $20,000 deposit on a first home, you could be saving for 10 years.

Many experts argue that saving can be profit foregone from opportunities such as participating in a recovering stock market, or paying down debt. While it’s hard to predict your returns from stock investments, fund managers will often show the long-term gains from stocks to be above interest rates on savings accounts.

A guaranteed method of gaining profit from your savings is paying debt, which normally attracts higher interest rates. For example, Evelyn has $10,000 in a 5 percent p.a. online savings account, and $20,000 debt on a 12 percent p.a. car loan paid over five years. By transferring her $10,000 savings into her car loan, Evelyn will lose $2,833 in interest from her savings account but she would have saved $3,350 in debt repayments, earning her $517.

But what if you’re without debt and simply saving for saving’s sake? This is the case for many retired Australians, who have finished paying off their mortgages and other debts.

There is no “rule of thumb” for how much everyone should save. However, if you’re debt free and want a savings option that guarantees you the highest returns on the market, you can compare today’s best online savings accounts for rates as high as 5.11 percent p.a.

If you think you’re saving too much, consider ways to make profit from spending, such as paying down debt or investing. But remember that saving should always be tailored to your goals, so make sure that your savings account is always working to please your needs, and not the other way around.

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Learn more about savings accounts

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

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 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.