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Is your money safer in your wallet or in the bank?

Is your money safer in your wallet or in the bank?

Some Australians are understood to be taking money management into their own hands… literally. But is stockpiling cash really safer or better than keeping your money in the bank?

In a speech to the House of Representatives Standing Committee on Economics last week, Reserve Bank of Australia (RBA) governor Dr Philip Lowe mentioned that as well as helping the federal government manage its economic support packages, the RBA has been working hard to support the “increased demand for banknotes”:

“While COVID-19 has accelerated the shift to electronic payments, there has, paradoxically, also been record demand for banknotes. Some people seem to be wanting to keep some extra money at home. The result has been that the stock of banknotes on issue has increased from $83 billion in February to $94 billion today. We have met this extra demand despite our main storage vault being located in one of the coronavirus hotspots in Melbourne.”

If you feel more comfortable keeping a ready supply of the folding stuff close at hand, or if you're concerned about the safety of the money you put in the bank, that’s fine. But when it comes to hoarding cash under the mattress like a slumbering dragon, there are a few potential risks to consider:

Your money could be lost, stolen or destroyed 

One of the main risks of investing in physical assets, such as a briefcase full of fifties, is that your wealth is physically held in the banknotes themselves. If you can’t access your banknotes (such as if you leave them at home while you’re out, or you bury them under a big X), you can’t easily spend them.

Furthermore, if your cash is stolen (whether in a mugging, a break-in, or an elaborate scheme masterminded by Hans Gruber), or destroyed (a very real risk if you live in a region of Australia that’s vulnerable to bushfires or floods), your money is gone, and may be impossible to recover.

Cash transactions could be a virus risk

If you’re taking cash out with the goal of spending it, keep in mind that this could put yourself and others at risk of spreading and/or contracting the coronavirus.

Coins and banknotes can serve as disease vectors. Considering that it’s possible to spread COVID-19 via respiratory droplets from coughs and sneezes, one cash transaction with someone who hasn’t washed their hands could mean risking future health problems.

Money under the mattress isn’t doing anything for you

Money locked in a safe or stashed under the floorboards isn’t going to grow anything other than a fine coating of dust. This can lead to problems when inflation affects the buying power of your money – for example, if ten years ago you put enough cash to buy a movie ticket in your piggy bank, today that pile of coins may only let you buy a small popcorn.

Keeping your money in the bank makes it possible to earn interest on your savings, and grow your wealth over time. Admittedly, interest rates on savings accounts and term deposits aren’t at their highest point at the time of writing. It may be worth comparing your options and looking for a higher interest term deposit, or a savings account with a higher bonus rate and terms and conditions that are easy for you to fulfil, so you can earn enough interest to help offset inflation.

What if savings account interest rates go negative?

Following consecutive cuts to Australia’s cash rate last year, there has been speculation that the RBA could drop the cash rate down to negative figures – a situation that could theoretically lead to banks actually charging interest on savings accounts, rather than letting savers earn interest on their wealth.

Although the pandemic and recession has put pressure on Australia’s economy, the RBA has stated that it is “extraordinarily unlikely” that it would send rates negative. 

Money in the bank is guaranteed by the government

Are you taking cash out because you’re worried about your bank going out of business thanks to the recession? Depending on your situation, you may not need to worry, as Australia’s federal government guarantees money deposited with Authorised Deposit-taking Institutions (ADIs).

Under the Financial Claims Scheme (FCS), the government guarantees up to $250,000 in deposits, per account holder, per ADI. That means if your bank went out of business, you’d be able to claim your money back from the government, up to $250,000.

Even if you have more than $250k saved in your account, there are still options to help protect your wealth in case the worst should happen. If your savings are in a joint account (such as an account you hold with your spouse), each account holder can claim up to $250K under the FCS. You could also look into splitting your money between different ADIs. Check with a financial adviser to learn more about what other options may be available for you.

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This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.

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Learn more about savings accounts

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.

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.

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 

 

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.

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.

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.

What are the requirements for opening Commbank multiple savings accounts?

Existing Commbank account holders can open additional accounts online You can open multiple savings accounts with Commbank to meet various goals like a down payment for a home or buying a car. 

To open an account, you’ll need the following:

  • An Australian residential address
  • To be 14 years or older
  • A Tax File Number (TFN) or TFN exemption.
  • Tax residency details

If you’re not a current Commbank account holder, you’ll need an Australian driving licence, birth certificate or passport and Medicare card. You may also have to visit a branch if your identity cannot be confirmed online. 

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

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 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. 

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.

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.

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.