Australia praised for its strong economy

Australia praised for its strong economy

Moody’s has affirmed Australia’s AAA credit rating, although it has also warned of “two key vulnerabilities” to the economy.

Moody’s gave four main reasons for Australia’s strong credit rating:

  • Robust and stable GDP growth
  • Very high resilience to economic shocks
  • Moderate government debt
  • Strong institutions that preserve macroeconomic and financial stability

The ratings agency also said that it expects Australia to retain its AAA credit rating for the foreseeable future.

Moody’s said that “even in the event of shocks, possibly in the housing market and/or to the economy’s access to external financing, the resilience of the economy supported by countercyclical macroeconomic policy” would allow Australia to retain its strong credit profile.

Australia – key economic stats

  • Economic growth = 3.1%
  • Unemployment rate = 5.4%
  • Inflation rate = 1.9%
  • Average weekly earnings = $1,567.90
  • Household debt-to-income ratio = 188.6%

RBA and APRA get big tick

Moody’s paid tribute to the Reserve Bank’s handling of monetary policy, which it described as “a key aspect of Australia’s institutional strength”.

“The Reserve Bank of Australia maintains stable inflation at moderate positive rates. In addition, the central bank has preserved capacity to use conventional monetary policy to offset shocks, should they occur,” according to Moody’s.

Moody’s also spoke positively about how APRA, the banking regulator, had managed the banking system.

“Australia ranks particularly highly in the Worldwide Governance Indicators on regulatory quality, which corroborates Moody’s assessment of the quality of regulation of the financial sector,” it said.

“For example, in recently responding to rising risks of a potential housing market downturn, [APRA] implemented restrictions on excessive lending to property investors, in order to curb debt-fuelled property demand.

“APRA also raised bank capital requirements in response to the Financial System Inquiry’s recommendation to further enhance the strength and resilience of the banking system.”

Government reaction

Treasurer Scott Morrison welcomed Moody’s decision to affirm Australia’s AAA credit rating. “The government’s record of strong economic management has ensured Australia’s AAA credit rating has been maintained with all three major ratings agencies, one of just 10 countries to have achieved this,” he said.

The Turnbull government is sticking to our plan for a stronger economy to guarantee the essential services Australians rely on and create more Australian jobs, while ensuring the government lives within its means by bringing the budget back into balance.”

Moody’s concerned about household debt

Despite giving Australia a largely upbeat assessment, Moody’s also highlighted “two key vulnerabilities”.

“One is high and rising household debt, which exposes the economy, and consequently public finances, to any house price downturn,” it said.

“The second is its longstanding dependence on overseas financing, which leaves it subject to changes in investor sentiment towards Australian assets.”

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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.

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 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.

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.

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 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.

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 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 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.

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.

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

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.