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Savings have doubled, but is it enough?

Savings have doubled, but is it enough?

June 9, 2011

Australians are saving almost twice as much of their household income than they were five years ago, new research has found. Yet many of us are still not looking to high-yield investment options such as online term deposit.

The household savings ratio increased to 11.5 percent in the March quarter, which is the highest percentage of savings to income since the late 1980s, according to Australian Bureau of Statistics data.

That’s around $2000 saved by the average household with an annual income of around $98,000. But that number could be much higher if savers maximised their excess income by investing it in high-interest earning accounts such as savings or term deposit accounts.

Damian Smith, chief executive of RateCity, says too much money is being whittled away in fee-charging everyday transaction accounts.

“According to the Australian Prudential Regulation Authority, there is just under $500 billion sitting in households’ deposit accounts just with banks – not including credit unions and building societies,” Smith says.

“That’s an astonishing $220 billion more than Australians had in their accounts just five years ago. Many households would be holding much of this cash in accounts with very low or even no interest.”

Invest smarter
A high-interest savings account isn’t a bad investment, given that the average online savings account earns 5.24 percent interest each year, according to RateCity data.

“Even if only 15 percent of the $500 billion sitting in bank deposits is in low or zero interest transaction accounts, then Australians could be missing out on as much as $4 billion interest, based on this money going into online savings accounts, where the average interest rate is 5.24 percent,” Smith says.

By investing that money into a term deposit account, the savings could be significantly higher again, particularly if you compare rates using RateCity’s new term deposit platform, which allows you to negotiate the day’s best rates online in a private environment.

Most everyday-use accounts earn little to no interest and many charge fees – the average fee is around $5 per month. By shifting your disposable income into a term deposit account you’re likely to reduce the amount of money you pay in fees and increase the amount of interest paid on your hard-earned cash.

“There’s plenty of opportunity to earn more money from your savings and avoid paying unnecessary fees. The easiest way is to compare deals using financial comparison websites such as RateCity and make sure you read product disclosure statements before signing contracts,” Smith says.

One of the top high-interest term deposit accounts available through RateCity is with ING Direct, with a rate of 6.5 percent on deposits of $2000 when fixed for 12 months. That equates to $130 interest per year – a significant amount compared to what is offered with most transaction accounts. So it’s worth comparing bank accounts with what’s on the market and switching to a better deal.

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