Bad news for savers
What interest rate cuts mean for your savings.
While the current low interest rates are great for homeowners with a mortgage and those looking to enter the property market, it’s a different story for those who are trying to boost their cash savings.
RACQ Financial Advocacy Analyst Nathanael Watts shares his tips on how members can make the most of their savings while interest rates are at a historic low.
What is your goal?
A low interest rate environment is the perfect time to consider why you want to save money as your end goal will influence your savings strategy.
The savings strategy for someone who wants to increase the dollars in their savings account will differ from someone who wants to increase their overall wealth.
I want to increase my cash savings
If your goal is to increase the amount of money in your savings account, it pays to shop around to find the highest interest rate.
Ensure the interest rate is above inflation (1.3% as at March 2019), or you will be spending money instead of making money.
It’s also important to consider account keeping fees and bonus interest when selecting a savings account.
Term deposits are another option to increase your cash savings.
Term deposits involve locking your money away for a set amount of time (term) at a fixed interest rate.
Consider whether the terms available match your needs as there are usually early exit fees if you withdraw money from your term deposit early.
Like savings accounts, it’s important to shop around to ensure your interest rate is higher than inflation.
I want to increase my overall wealth
There are more options available to you if you’re keen to increase your overall wealth rather than just your cash savings.
You may be able to improve your wealth through investing in shares or salary sacrificing into superannuation.
These options are long-term approaches but you’re more likely to receive higher returns.
Check how your superannuation is invested to ensure the risks and returns associated with the investment is right for your age and circumstances. If you’re more than 10 years from retirement you may consider choosing a higher growth option as you have time to ride out the ups and downs of the market. As you approach retirement age you may decide to choose a conservative investment option to reduce investment risk.
I want to get out of debt
Another option for managing your money in a low interest environment is paying out your debt rather than increasing your savings.
Making extra credit card, personal loan or mortgage repayments means you’ll pay less interest and pay off your loan faster.
If your mortgage has an offset account, you’ll earn interest at the same rate that you’re paying on the loan. For example, if you’re paying 4% interest on your mortgage, you’ll also earn 4% interest on money deposited into your offset account. This can be significantly higher than other savings accounts and also reduces the amount you pay on your mortgage.
The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person’s particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.
Banking products are issued by Members Banking Group Limited ABN 83 087 651 054 AFSL and Australian credit licence 241195 trading as RACQ Bank. Read the disclosure documents for your selected product or service, including the Financial Services Guide and the Terms and Conditions, before deciding.