Tax returns to offer savings bump in uncertain times: ME Bank

Tax returns to offer savings bump in uncertain times: ME Bank

A majority of people plan on banking this year’s tax return as they brace for the economic uncertainty brought about by the COVID-19 pandemic, a survey has found. 

Some five million people have received a $2527 return this year as of August 27, the ATO confirmed. 

And about 58 per cent of them are planning on adding that money to their savings stash, according to a survey of 1000 people by ME Bank, representing a 9 per cent rise compared to a year earlier.

The findings highlight people’s growing reluctance to spend money in the midst of a volatile pandemic, Claudio Mazzarella said, the general manager of personal banking at ME Bank. 

“The pandemic is clearly changing the financial habits of the nation,” he said.
“A tax refund is a great opportunity to establish or bolster your emergency savings, particularly at a time like the present.” 

Tax refunds -- much like the government’s COVID-19 subsidies -- may offer some people respite from a tough financial position. This year’s returns come as the economy is experiencing its first recession in almost 30 years, unemployment is forecast to rise to double digits and parts of the country cope with lockdowns and border restrictions.

A fifth of people (21 per cent) said they will be spending their returns on paying down their mortgages -- up by four per cent from the year earlier.

Others had planned on putting the money to work for them. About 18 per cent said they’ll be investing in shares or superannuation -- an increase of 2 per cent.

Where will the spenders put their money?

Social distancing measures have left many people with an appetite to holiday, eat out or spend on other items such as clothes, the survey found. 

“Naturally, some Australians will be keen to start socialising with friends and family as COVID-19 restrictions gradually wind down in some states,” Mr Mazzarella said.

Of the 22 per cent who plan to spend their return on non-discretionary measures, 50 per cent plan on putting it towards eating out, entertainment or recreation -- a 19 per cent rise compared to the year before. 

About 45 per cent are putting it aside for a holiday -- a drop of five per cent. 

Offsetting the holiday drop was a rise in people wanting to spend the money on fashion. About 48 per cent they’ll be buying clothes or shoes -- up 8 per cent. 

Finding the right savings account

COVID-19 has sent ripples of change throughout the financial products available on the Australian market -- including savings accounts. In a four week period, a RateCity analysis found 46 banks had cut the interest rates of their savings accounts.

And finding the right savings account is important because the goal is to have your money make even more. 

There’s a few things to look for when considering a savings account

The advertised interest rate is the headline figure and is an easy way to draw comparisons between accounts, but be aware that introductory rates may revert to a lower rate after a period of time. 

It’s also wise to consider the different fees as they could eat into the interest being accrued. These may include account keeping fees, withdrawal fees and minimum balance fees. 

Some accounts may also require a minimum amount to be deposited cyclically -- such as a monthly salary. There are savings accounts that don’t have this requirement, but they may offer a lower rate of interest.

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Learn more about savings accounts

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 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

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 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)

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.

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 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.

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.

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.

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.

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.

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 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.