Household wealth grew by $5881, a partial recovery for the quarter

Household wealth grew by $5881, a partial recovery for the quarter

Some of the value people lost in superannuation, shares and savings due to the COVID-19 pandemic has been recovered, quarterly figures reveal, but a larger rebound was held back by falling property values.

A recovering economy helped the average household’s wealth go up by $5881 in the June quarter, figures from the Australian Bureau of Statistics (ABS) reveal, but the 1.4 per cent lift wasn’t enough to offset the 3 per cent fall that took place in the March quarter. 

"The June quarter 2020 financial accounts reflect the recovery of the Australian and international financial markets as the economic impacts of COVID-19 became more evident, and government and RBA policies took effect,” Amanda Seneviratne said, the head of finance and wealth at the ABS.

The average person’s wealth is now estimated at $433,833, the ABS said, and it has been buoyed by a 3 per cent recovery in shares, 2.7 per cent increase in deposits, and a 5.4 per cent lift in superannuation balances. 

The increase in superannuation values would not include the full $33.3 billion withdrawn to date from people’s accounts under the government’s early release of superannuation scheme, a financial relief measure instituted to offset the financial shock of COVID-19. By the end of the June quarter, about $18.1 billion had been withdrawn, preceding a wave of people double dipping.

House values trail, but a large recovery is anticipated

Falling property prices offset the returning confidence in savings and halted a larger recovery, the ABS said. Residential home values fell 1.2 per cent over the June quarter.

“The holding loss on residential assets reflected widespread falls in property prices due to a combination of social distancing measures (restrictions on auctions and open house inspections) and ongoing economic uncertainty,” the nation’s statistical agency said.

Property prices have fallen across the nation by 1.7 per cent in the most recent quarter, CoreLogic said, led by falls in Melbourne of 3.5 per cent and Sydney of 2.1 per cent.

Economists project falls of 5 to 6 per cent across the country as of next year, riding out predicted ‘urgent’ sales of houses due to distressed mortgages, before a strong recovery of 15 per cent is forecast to take place. 

Savings bunkers offer peace of mind

People are saving more and spending less due to the uncertainty brought about by the pandemic, the ABS said. 

Household deposits jumped by $33.4 billion during the June quarter, driven by government income support packages such as JobKeeper, JobSeeker and early access to superannuation.

The rise in deposits comes as 932,000 jobs were lost during the March and June quarters, according to the ABS.

Households have been stockpiling savings as a way to financially protect themselves from the volatile climate created by the pandemic. IBISWorld estimates savings as a portion of disposable income jumped from 2.7 per cent to 7.9 per cent for the financial year ending in 2020.

And people are expected to hold the savings buffer for a few years, the research firm said. 

“As with the post-GFC recovery, savings are likely to remain at elevated levels for at least the next three years,” they said, adding: “Consumers are likely to spend cautiously as they did after the GFC.”

Consumer confidence shows signs of returning

The more people hold on to their money, the less they’re likely to spend it.

It doesn’t present harm in the short run, a big bank executive said, but a return to buying from businesses will help the country climb out of its first recession in almost three decades. 

“People are not spending as much, that’s a COVID impact. People are putting money into their bank deposits,” Peter King, chief executive of Westpac, recently told a parliamentary committee

“As an economy, we’d like more activity and spending … Over time we’d like to see the activity driver.

“Lower consumption means less activity for businesses. That’s one of the challenges we have in the economy at the moment.”

Consumer confidence is returning, according to a sharp monthly rise in the Westpac-Melbourne Institute Index of Consumer Sentiment, though it still is fractionally behind pre-pandemic levels.

The survey of 1200 adults found consumer confidence experienced a monthly jump of 18 per cent in September to 93.8, renewing people’s optimism when it comes to buying property, saving money or looking for a job.

“Consumer confidence is returning to more normal levels,” Bill Evans said, chief economist at Westpac.

“Although, the sensitivity to progress in managing the virus and the opening up of economies remains key to the outlook.”

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Learn more about savings accounts

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

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 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

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 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.

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.

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.