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Australians saving about a fifth of income as country bounces back from recession

Australians saving about a fifth of income as country bounces back from recession

The country bounced back from a quarterly loss comparable to The Great Depression, but Australians are still being cautious and saving nearly 20 per cent of their income.

The economy grew by 3.3 per cent in the September quarter, according to the Australian Bureau of Statistics (ABS), bouncing back from the 7 per cent drop that took place a quarter earlier, and offering some hope that the worst of the economic fallout from the COVID-19 pandemic has passed.

“Technically, Australia’s recession may be over but Australia’s economic recovery is not,” Treasurer Josh Frydenberg said.

“There is a lot of ground to make up and many Australian households and many Australian businesses are doing it tough.”

The recovery was bolstered by a 7.9 per cent lift in household consumption, Mr Frydenberg said, the largest lift on record.

Returning confidence to a stalled housing market also helped, he said. Dwelling investment was up by 0.6 per cent following eight consecutive quarterly falls, spurred on by a 5.1 per cent lift in construction and renovation work.

“The outlook for the housing market is positive,” Mr Frydenberg said, “supported by programs like HomeBuilder and the First Home Loan Deposit Scheme.”

Unemployment remains high, hovering at around 7 per cent as opposed to its typical 5 per cent, but the Reserve Bank of Australia (RBA), the nation’s central bank, has said the country has bested projections.

“We have now turned the corner and a recovery is underway,” Philip Lowe said, Governor of the RBA.

“... When we met three months ago, I was saying the unemployment rate in Australia could get to 10 per cent. Now I think somewhere in the sevens will be the peak.”

Still nervous about the pandemic, people are saving a lot more

In the March quarter, the household savings to income ratio was 7.6 per cent, according to the Australian Bureau of Statistics (ABS).

But people have been choosing to save more and spend less since the pandemic, causing the ratio to lift to 22.1 per cent for the June quarter, and then ease a little to 18.9 per cent for the September quarter.

“At times of uncertainty, people save more,” Mr Frydenberg said.

“Importantly, as the restrictions are being eased, as confidence is coming back, Australians will continue to spend and that money … is money there to be spent in the coming months.”

The current level savings to income ratio exceeds the 10.9 per cent registered during the Global Financial Crisis (GFC).

We’re saving more but earning less

Money in savings accounts have lifted by 9.98 per cent since COVID-19 arrived in March, data from the Australian Prudential Regulation Authority (APRA) reveals, swelling by nearly $100 billion to $1.098 trillion,

And it’s likely people would be earning less income from their savings,

More than 40 banks have slashed interest rates on their savings accounts since the RBA lowered the cash rate to 0.10 per cent, a RateCity analysis has found.

“It’s abundantly clear from these non-competitive rates, the banks just don’t need or want any more deposits,” Sally Tindall said, research director at RateCity. “They’re officially paying peanuts.”

The RBA cash rate is a guardpost banks use to set interest rates for mortgages and savings accounts. Its lowering to 0.10 per cent in November -- an extraordinary new low not seen in 30 years of record keeping -- has helped make mortgages more affordable and spurred home loan lending, but it has also given banks reason to slash the earning power of people’s savings.

“It’s frustrating to see savings rates tumble despite no move to variable home loan rates,” Ms Tindall said.

“People looking for a competitive rate on their savings account or their home loan have to get up and do something about it. Do nothing and you’ll be duped.”

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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.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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.

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.

Do banks run credit checks on savings accounts?

When you apply to open a new savings account, some providers may conduct a credit check, meaning that they will ask a credit bureau for your credit history. This isn’t always the case on savings accounts though and depends on the provider, as you aren’t borrowing money. 

As you are opening a savings account and not borrowing funds, this credit check is considered a soft inquiry and should not affect your credit score. If the bank has run the credit check, you can often still open a savings account even if you have a poor score, provided you meet other requirements. 

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 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.

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. 

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 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 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.