Australians tighten their belts, keep cash close as deposits surge

Australians tighten their belts, keep cash close as deposits surge

Nearly half of Australians are cutting back on spending they made before COVID-19, new research indicated.

Yet many who are in a better financial position are stashing away their cash in deposit and offset accounts, as they respond to an uncertain economy.

The proportion of people tightening their belts outweighs those who are maintaining (31 per cent) or increasing (21 per cent) their levels of spending, the Melbourne Institute’s latest survey of 1,200 adults, conducted in the first week of September, showed.

Professor Guay Lim, lead author of the survey report, described the spending findings as “sobering”, but pointed out that the future outlook has become more positive.

“There are indications of an increase in expected spending from early 2021,” she said.

“While 52 per cent of Australians report spending more or the same as before the pandemic, overall 67 per cent expect to be doing so in six months’ time.”

Thirty per cent of poll respondents believe they will be spending less in March 2021 than pre-pandemic days, slightly down by 2 percentage points from the previous survey in early July.

Spending across the states

Despite the survey’s relatively optimistic outlook, it noted that the states are likely to experience varying recovery rates, as what Australians are spending and expecting to spend differ across the states.

More people in NSW, Victoria and South Australia are limiting their spending than before COVID-19 when compared with July. But in Queensland and Western Australia, more people are maintaining or increasing their expenses.

“The differences in actual and expected spending across the major states appear to be closely related to changes in their households’ financial conditions and in how often people in each state limit activities outside of their own homes,” the survey report wrote.

The proportion of NSW residents who have not changed or have increased their spending fell by 10 percentage points to 51 per cent in the two months to September, making it the biggest drop in those spending the same or more.

Fewer people in NSW and South Australia anticipate spending to have recovered in March 2021.

“It appears that lower numbers of new cases and easing restrictions in these states have yet to translate through to higher consumer confidence and activity,” the report noted.

A different story is unfolding in Victoria. Despite 53 per cent of Victorians cutting back spending for now, one in five say they are in financial stress, and more people expect to be spending the same or more in March next year.

“Victorian households are resilient and optimistic about future spending, with 70 per cent expecting to spend the same or more in March 2021,” the report wrote.

Notably Queensland and Western Australia have seen an increase in the proportion of financially comfortable households, likely due to the easing of restrictions, which has pushed up confidence and willingness to spend. 

Aussies take financial action

As some states enjoy higher financial comfort, the share of households in a “fragile financial position” has more than doubled since before the pandemic, a separate survey of 1,145 Australians from the Financial Planning Association (FPA) showed.

But many Australians are taking things in their own hands.

Four in five Australians took steps to deal with the financial impact of the pandemic on their household, the survey showed.

About 64 per cent cut back on their discretionary spending, while 48 per cent also scrimped on essentials and more than a third cancelled their paid memberships.

Nearly one in five sought additional work and 13 per cent reached out for financial support or applied for a loan.

While many Australians are shifting their spending patterns temporarily, some also believe it could take longer for them to return their consumption to pre-pandemic levels.

Almost half of survey respondents are aiming to bring their spending on non-essentials, including dining out and social activities, back to normal within six months. One in five expect this could take up to 12 months.

Household deposits, mortgage offset accounts see a boost

The survey findings on spending patterns come as new data paints a picture of a country keeping their cash close.

Household deposits jump by 6.4 per cent, or $64 billion, during the pandemic between March and July, the latest figures from the Australian Prudential Regulation Authority (APRA) showed.

Australians have also been setting spare money aside in their mortgages.

Funds in offset accounts surged to $178 billion in the June quarter, up by 2.5 per cent on the previous quarter, and 12.4 per cent from June 2019.

Sally Tindall, research director at RateCity, said while many have lost their jobs or had their working hours and income reduced, others who are still in their jobs have seen a boost in their savings.

“Months of low-cost lockdown living, reduced transport costs, bans on travel and free childcare services has given many family budgets an unexpected lift,” she said.

For many, this was also helped with the early release of superannuation.

Rather than spending the extra cash, many of these people opted to squirrel away their savings into their mortgage to improve their financial position. 

“COVID-19 has reinforced the importance of having a rainy day fund, because what this pandemic has shown us is that no-one really knows what lies ahead,” Ms Tindall said.

Big four banks - standard accounts

Bank Product Intro rate Ongoing rate Intro term
CBA NetBank Saver

0.95%

0.05%

5 mths
Westpac eSaver

0.85%

0.05%

5 mths
NAB iSaver

0.95%

0.05%

4 mths
ANZ Online Saver

0.80%

0.05%

3 mths

Source: RateCity. Note: Data accurate at time of publishing.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about savings accounts

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)

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.

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

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 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.

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

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 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. 

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.