Australians putting financial and life goals on hold due to COVID-19

Australians putting financial and life goals on hold due to COVID-19

Australians are being forced to push back their financial goals and major life events, as COVID-19 impinges on consumer confidence and money habits, new research showed.

Almost a quarter of prospective home buyers had no choice but to put their property purchase plans on ice due to the coronavirus-induced recession, an AMP-commissioned survey of more than 1,000 adults indicated.

About one in five had to delay their purchase of an investment property. 

This is despite record-low interest rates, as well as housing prices in the combined capitals dropping by 1.5 per cent in the past three months, the latest CoreLogic data showed. 

However, those that are going ahead with their property purchases are rushing to buy in regional markets, as many professionals now working remotely no longer have constraints to live close to their inner city offices. 

Nearly 30 per cent of AMP survey respondents say they are holding off on car purchases, and the same proportion are being forced to delay major life events, such as weddings. 

Sixty per cent are pushing back their overseas holidays, as international border restrictions remain closed in Australia.

Additionally, 20 per cent of Australians are postponing planned career changes in favour of stability due to the pandemic.

Aussies make cut-backs on spending

As many rethink their life priorities and financial goals, two thirds of Australians say COVID-19 has affected their personal finances, the research found. Almost half do not expect progress on their financial goals to continue as planned pre-pandemic for at least another three months.

Nearly 40 per cent indicated they have reduced spending due to the economic environment, as the recession weighs down on consumer sentiment.

Retail turnover declined by 4.2 per cent in August amid the recession, the latest figures from the Australian Bureau of Statistics (ABS) showed. Even when excluding Victoria, retail trade across the rest of the country decrease by 1.5 per cent in the same period.

AMP Bank’s director of retail solutions & direct distribution Michael Christofides said COVID-19 has made many Australians become more financially savvy, after riding out possibly the worst stages of the pandemic.

“With talks of the recession and consumer confidence down, it’s clear that many Australians have been impacted by COVID-19, including having to hold off on making significant financial decisions from retirement to travel to buying property,” he said.

“We’re seeing Australians being more prudent with their saving and spending decisions, partially due to lockdown restrictions but also relating to a desire to be prepared for any future rainy days.

“Now more than ever, Australians are conscious of the importance of saving and preparing for the unpredictable.”

Uptick in savings as Australians plan ahead

Aside from pinching their pennies, more than a fifth of Australians have also made a conscious effort to save more, while also directing funds to investments, the AMP research found.

Forty-four per cent of poll participants indicated they have seen a boost in their savings, as many people stay at home due to COVID-19, making it harder for them to splash their cash.

Aligning with the survey findings, the average household wealth jumped by 1.4 per cent, or $5,881, per person to more than $430,000, according to ABS data, despite several major banks, including CBA and NAB, cutting savings rates recently. 

This is tipped to continue, with savings levels expected to stay high over the next three years, the latest IBISWorld research suggested. 

Meanwhile, 39 per cent said the pandemic has acted as a catalyst to sort out their personal finances and become more financially prepared, while 45 per cent are hopeful that their finances will improve post-COVID.

Mr Christofides said the pandemic has encouraged many Australians to put their personal finances under the microscope.

“There’s no doubt that COVID-19 has brought with it a number of challenges for Aussies but the challenging climate has given some the opportunity to take a step back and re-evaluate their personal finance journeys,” he said.

“Compared to earlier in 2020, there’s a sense that Aussies are taking this time to reset their financial goals and adopt more proactive financial behaviours both in relation to saving and discretionary spending.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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Learn more about savings accounts

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.

What is a Westpac locked savings account?

The Westpac locked savings account (also known as "Westpac Life") can help customers reach savings goals faster through bonus interest. Customers receive 0.2 per cent standard base interest with a variable bonus rate of 0.35 per cent when the closing balance at the end of the month is higher than the opening balance.

There are some conditions to earn the bonus interest on Westpac's locked savings account, though. First, you’ll need to increase the balance each month either through a deposit or not making any withdrawals, and then link it to a Westpac Choice account and make at least five eligible payments using your debit card. Please consult your bank as to what an eligible payment is. 

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.

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 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.

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 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.

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

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

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 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 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.