More Aussies facing financial stress

More Aussies facing financial stress

According to ME’s latest Household Financial Comfort Report more and more Aussies are feeling the pinch and are either being forced to bust open their piggy banks or resort to credit cards and loans just to make ends meet.

The HFCR measured people’s levels of financial comfort from 1-10 (1 being the least financially comfortable, 10 being completely financially comfortable) of 1,500 households in regard to the Household Financial Comfort Index. The index is made up of components like comfort with ‘savings’, ‘dealing with a financial emergency’, ‘investments’ and ‘level of debt’.

According to Consulting Economist for ME, Jeff Oughton, the ‘comfort with savings’ saw the biggest overall dip, slipping to 4.93/10, a decline of 3 per cent. Oughton said this meant that “some households may get to a point where there’s no more savings to draw from. Currently, around a quarter of Australian households have less than $1000 in cash savings.”

Australians suffering the most from financial stress

  • Students: 18/10. Students’ financial comfort dropped 15 per cent since the last report was made.

Oughton proclaimed that “Students are always among those with the lowest financial comfort in each HFCR due to a lack of comfort with cash savings, investments, net wealth and their reduced ability to manage a financial emergency.”

  • Young singles/Couples under 30 with no children: 30/10. The financial comfort of this sector dropped 11 per cent to this record low.

This millennial category scored particularly low in “comfort with savings” and “comfort with a financial emergency”, according to the report.

  • 50+ year olds: 22/10. This drop of 3 per cent was another record low, which was in fact -7 per cent since the beginning of the survey.

Oughton proclaimed that while people may consider this age group more financially secure, in fact “many are still concerned about current finances as well as worried about their life after work, expressing an 8 per cent drop in comfort with their expected standard of living for retirement, as well as a -7 per cent fall in their ‘comfort with savings’. Recent changes to superannuation in the past year appear to be significantly impacting this life stage.”

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Australians less affected by financial stress

  • South Australia:78/10. South Australia’s comfort with finances increased by 16 per cent.

Oughton said: “South Australia’s rise in household financial comfort appears to be linked to the sustained and significant fall in unemployment, with households feeling more positive about their jobs, incomes and their financial position generally.”

  • Self-employed workers: 22/10. The self-employed cohort’s comfort in finance rose by 17 per cent.

Oughton said: “With about 15 per cent of the workforce self-employed, it’s clear a number of entrepreneurial Australians are opting to be their own boss, taking control of their own finances and are feeling the positive benefits in their household finances as a result.”

Concerns for households nationwide

 They found that despite the rising cost of living expenses, nearly half of households (42 per cent) had not seen any change reflected in their incomes over the last year. 24 per cent actually reported having cuts made to their incomes, whereas only 34 per cent saw a raise. This resulted in a decline in ‘comfort with income’ by 2 per cent nationwide.

Housing stress is still a common problem among Australian households, with a common indicator of financial stress being that a reported 45 per cent of households contributed more than 30 per cent of their disposable income towards mortgages during the past 6 months.

There was a rise in the number of households with debt that expect that they ‘will not be able to meet their required minimum payments’ and ‘can just manage to make minimum payments on their debt’ in the next 6 –12 months. This is a total of 43 per cent, compared to 38 per cent in December 2017.

The good news?

“The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to the housing market cooling and rents falling. While almost three-quarters (72 per cent) of renters were previously contributing over 30 per cent of their disposable income towards rent, this number dropped significantly to two-thirds (67 per cent) in the most recent survey.”

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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 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.

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.

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 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 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 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 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 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.

What are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.