Commonwealth Bank predicts a “much stronger recovery”

Commonwealth Bank predicts a “much stronger recovery”

Australia's economy could snap back much quicker and stronger from the COVID-19 pandemic, experts say, but the road to recovery has been described as “uneven” and “bumpy”.

Climbing out of its first recession in almost 30 years, the Commonwealth Bank predicts the economy could grow by 4.2 per cent in 2021, eclipsing earlier projections by an additional 1.7 per cent.

“Provided transmission of COVID-19 in Australia remains low, particularly community transmission, the strength of the economic recovery in 2021 will surprise many,” Gareth Aird said, head of economics at Commonwealth Bank.

“We believe the metaphorical ‘bridge’ has been built very well and sets Australia up for a prosperous next two years.”

The sudden arrival of the coronavirus pandemic led to the economy shrinking by 7 per cent in the June quarter, according to the Australian Bureau of Statistics (ABS), ending a 28 year streak of economic prosperity and drawing comparisons to The Great Depression.

“The similarities between the Great Depression and the COVID-19 pandemic from an economic perspective only pertain to the Q2 20 activity data,” Mr Aird said. “There is not much about the Australian economy in 2020 that is analogous to the Great Depression.”

The quarterly drop is expected to offset growth for the year. Forecasts have the economy contracting by 3.3 per cent.

But government support packages have kept “much of the economic furniture intact,” Mr Aird said, making it possible for a speedy rebound as restrictions are eased.

Good and bad signs

Some economic indicators show promise, but others signal more work needs to be done.

Consumer confidence has hit a seven year high, home loan commitments are up 25 per cent for the year, and property values are growing after posting five straight months of losses.

However, unemployment and underemployment continue to hover at higher-than-typical levels, while there’s concerns mortgage defaults will rise next year, leading to a deluge of distressed sales and a return to falling property prices.

The Reserve Bank of Australia (RBA) has said the recovery is underway but it will not be straightforward.

“Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago,” Philip Lowe said, governor of the RBA.

“Even so, the recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus.”

Jobs are key to economic recovery

About 932,000 jobs were lost between the March and June quarters due to the COVID-19 pandemic, but about 425,100 of these jobs were recovered in September, according to ABS figures.

The unemployment rate, sitting above its typical 5 per cent level at 6.9 per cent, is expected to increase by the end of the year to 8 per cent, the RBA said.

Underemployment statistics tell a similar story. Its 11.4 per cent level in September hovers about 3 per cent higher than usual.

As government stimulus payments -- such as JobSeeker, JobKeeper and HomeBuilder -- lower or expire, and mortgage deferrals end, it becomes more important to help people gain employment.

“My number one priority is to get more Australians into work,” Prime Minister Scott Morrison said last week.

“As the country is safely reopening and businesses start to return to full steam, we need to connect those seeking work with available jobs.”

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Learn more about 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 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

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 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 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 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.

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.

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:

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  • 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 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.

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 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.