Trading shares is easy to do – but not for the faint-hearted

Trading shares is easy to do – but not for the faint-hearted

You might’ve heard that the Australian stock market has been on a bit of tear, jumping 15.3 per cent since the start of the year.

You might also be wondering: is the market going to keep rising, and how can you get a piece of the action?

First things first, nobody can ever say what’s going to happen to the All Ordinaries, which is an index representing 500 of the largest companies on the ASX (Australian Securities Exchange).

The All Ords might go up, down or sideways. Nobody knows. The stock market is volatile, as this performance table from the past 20 years shows:

All Ordinaries Growth
Change since the start of 2019 15.3%
Change over the past 1 year 7.5%
Change over the past 3 years 20.3%
Change over the past 5 years 19.7%
Change over the past 10 years 72.6%
Change over the past 20 years 127.8%

How to trade shares

The second question – how to become a share trader – has a clearer answer.

If you want to buy or sell shares on the ASX, you need to go through a middleman (known as a stockbroker), who will charge a fee each time you make a transaction.

These stockbrokers come in two flavours:

Type Service Cost
No-advice brokers They make trades on your behalf – nothing else Lower-cost
Full-service brokers They make trades on your behalf – and offer advice Higher-cost

Regardless of which type of stockbroker you choose, the broker will almost certainly allow you to buy and sell shares over the internet.

When you want to buy shares in a company, you use your online broking platform to nominate how many shares you want to buy and the price you’re willing to pay. If the broker finds someone who is willing to sell you those shares at that price – the deal goes through. (If not, the deal never gets completed.)

The same process applies in reverse when you want to sell. You nominate how many shares you want to sell and the price you’re willing to accept; the deal goes through if the broker finds someone who wants to buy your shares at your price.

Looking for a stockbroker?

Visit the ASX’s ‘find a stockbroker’ page for more information.

Pros and cons of buying shares

As with all matters financial, investing in the stock market involves pros and cons.

On the plus side, it’s easy to set up a trading account, you can get started with as little as $100 and you could potentially make a lot of money.

On the minus side, it can be hard to know which stocks to choose, you have to pay to play and you could potentially lose all your money.

That’s why you should think carefully before taking the plunge. Other investment options include:

  • Leaving your salary in a savings account
  • Locking away your money in a term deposit
  • Salary sacrificing into superannuation
  • Buying an investment property

Should I buy shares?

Click here to find out five reasons why you should … and five reasons why you shouldn’t.

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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.

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

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 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 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 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.

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 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 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 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. 

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.

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 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.