Australians’ confidence in personal finances grow

Australians’ confidence in personal finances grow

Australians are feeling less anxious about their financial situations, but this could change when support from the government and financial institutions are stopped, according to new NAB research.

Concerns about personal finances eased across all key demographic groups, with NAB’s Household Financial Anxiety Index falling by nearly four points to 57.7 points in the three months to June 2020. It was the first fall after three consecutive quarters of increasing financial anxiety.

While NAB described the latest index as “below average”, it was still slightly higher than the 56.3 points seen in the same quarter last year.

About a third of Australians say they suffered financially in the three months to June 2020, down from 40 per cent in the previous quarter. It was the lowest proportion of households in financial hardship in the past three years, despite pressures from the pandemic, soaring unemployment and the wider economic downturn.

But the impacts of these challenges have been cushioned significantly for many by government stimulus measures, including JobKeeper and JobSeeker, mortgage repayment deferrals and the early release of superannuation.

NAB’s head of behavioural and industry economics Dean Pearson said the story on financial wellbeing may change once these support initiatives end.

JobKeeper and JobSeeker in its current form is due to end in late September. And mortgage-holders who continue to face financial strife may apply to defer their repayments for a further four months after the September deadline.

Debt a concern for many

While debt was found to be “manageable” for 70 per cent of Australians who have an outstanding loan, debt was still worrying for many borrowers.

Almost a quarter of those who have a loan said they were holding a “bit more debt than manageable”. Five per cent indicated that they had “far more debt than manageable”. But this number increased to nine per cent for both low-income earners and for people who were unemployed.

Unsurprisingly, people with payday loans had the highest level of concern for their debts, rating it 59 points out of a possible 100. A payday loan is a short-term loan for up to $2,000, but often with exorbitant interest rates and fees.

About 6 per cent of Australians have an outstanding payday loan. Young adults were more likely to hold this type of loan, with 23 per cent of those aged 18 to 29 holding a payday loan.

However, payday lending fell in the June quarter. One in 10 of those who faced financial hardship in this period opted to take out a payday loan, down from 18 per cent in the previous quarter.

The most common form of debt Australians used for financial relief in the surveyed period was credit cards, with a third of Australians turning to their plastic in times of financial need.

More than 30 per cent of households resorted to family and friend loans, and 13 per cent used a bank loan.

Credit cards were the most commonly held debt, with 45 per cent of Australians having an outstanding credit card balance. But that didn’t translate to strong concerns for credit card debts, which was rated an index of 44.8 points. 

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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.

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.

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.

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.

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.

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.

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 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.