Recent research shows that households are battling swiftly rising prices. But despite the pressure on wallets many Australians are keeping their savings in good shape.
According to ING DIRECT’s latest Financial Wellbeing Index, households are feeling the pinch of prices that are rising way beyond official inflation rates. The survey found that on average, the cost of essentials like fuel and power have jumped by 7.5% over the last year. It’s a far bigger price hike than the 2.7% increase suggested by the Consumer Price Index.
Despite thinly stretched budgets, research group Canstar Cannex says Australians still have a total of $2.3 billion locked away in term deposits. A further $1.5 billion is sitting in savings accounts.
I’m a firm believer in having some backup savings for emergencies, and clearly many households have cash available if it’s needed. The important thing is to avoid dipping into the money unless you really have to.
Term deposits have the advantage that your money is locked away for a fixed period so they’re ideal if you can’t resist the urge to spend. It is possible to break into the deposit before the term is over but this takes time and involves losing part of your interest earnings.
The other plus of term deposits is that many are paying more generous rates than you’ll earn with regular savings accounts. On terms of 12 months or more you can earn over 6% with the likes of RaboDirect (6.6%), Heritage Building Society (6.3%) and Bankwest (6.3%).
These generous rates have taken some of the gloss off online savings accounts which were once looked on as a more flexible rival for term deposits.
Canstar Cannex research shows that not so long ago introductory rates for online savers were as high as 7.75%. Over recent weeks this has settled down to a more sedate 6%.
I still reckon online savers offer a good deal as many of these accounts are fee-free but do check exactly what rate your money will earn. Many accounts come with promotional rates that only run for a certain period before dropping to a lower rate. Virgin Money’s Virgin Saver for instance pays 6.51% for the first four months then the rate reduces to 5.35%.
If you are struggling with rising living costs – and you know you’re likely to face some solid bills down the track, tucking away some funds into a savings account can help you manage the cost. It’s far easier to set aside $40 each week than it is to come up with a lump sum of, say, $500 for a quarterly power bill. The interest you earn on your savings will help you meet the cost, and by paying bills on time you’ll avoid late payment charges.