Low level wage growth continues in Australia

Wage growth is up – but at an historically low rate – across both the public and private sector, according to the latest information from the Australian Bureau of Statistics (ABS).

Total hourly rates of pay (excluding bonuses) rose 0.5 per cent in the June quarter 2017. ABS noted that this continued a subdued rate of wage growth recorded over the last two years.

If we explore wage growth change over the 12 months leading to June 2017, it has also risen by 1.9 per cent.

However, this is an historically low level of wage growth.

Rates have been dropping since 2011, which saw a national percentage growth of 3.8 per cent.

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Source: ABS.gov.au

Why is this the case?

In 2015, the RBA released a bulletin outlining why wage growth has declined in Australia over the past few years. There are a few factors that come in to play. 

  1. Unemployment rates

Low wage growth is often observed to be associated with higher rates of unemployment.

“As slack in the labour market rises, employees become more anxious about their job security and become willing to accept lower wage growth as there are fewer opportunities for alternative employment and more competition for any given job vacancy.”

However, unemployment rates have been steadily falling in 2017, indicating that wage growth may see some improvement in the future.

  1. Inflation Expectations

When it comes to inflation, employees are concerned with the purchasing power of their wage in terms of the goods and services it affords, rather than its monetary value; i.e. “they are concerned about their real as opposed to nominal wage,” says the ABS bulletin. 

“Surveys of households and unions indicate that expected consumer price inflation for the year ahead has been below average.

“Expectations of inflation of consumer prices, while generally well anchored, appear to have a cyclical component that might feed back into wage outcomes,” said the ABS bulletin.

  1. End of the mining boom

Another factor that could be influencing Australia’s low wage growth is the end of the Australian mining boom.

The decline of trade and fall in mining investment has been linked to unemployment rates, as well as many company’s output prices.

“Higher prices for a firm’s output mean that it can afford to pay higher wages, and vice versa,” according to the ABS bulletin.

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Learn more about savings accounts

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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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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.

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. 

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.

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 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. 

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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.

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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.)
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  • Employment details

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 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.