Most Australians have decided it is time to put money away for a rainy day.
According to consumer reports and banking industry data Australians have definitely taken to saving their money and it looks like this trend is here to stay for some time.
As part of the response to the global financial crisis Australians have rapidly discovered the existence of high yield and worry free returns, term deposits and fixed income funds.
Over the past year there has been a lot of competition between the banks resulting in higher interest rates being made available. With options changing all the time consumers need to be aware of what is available.
Since the interest rate rise last year, there has been a trend to pay off the credit card and reduce mortgage debt.
According to Greg McAweeney general manager of RaboDirect statistics have shown that almost a third of Australians could only survive for two months if they were forced to live off their savings.
A number of institutions have reduced their introductory rates on savings accounts, so savers need to be aware of rates that are being made available, once the intro rate is over, and be prepared to renegotiate another intro rate or be prepared to change to a different bank.
When Virgin Money launched their online savings account in July, they offered an introductory rate of 6.75 per cent for four months. This rate has now dropped to 6.51 per cent, but the base rate has remained the same at 5.35 per cent.
Consumers are turning to term deposits with the best deals on terms 6-12 months where interest rates are as high as 6.6 per cent.
Some consumers who are using short-term deposits are allowing their deposits to roll over for another term and thus causing them to lose out.
Every time that interest rates go up consumers tend to focus more on their mortgage repayments, which in effect is a form of saving.
Consumers who pay more on their mortgage every month can save quite a lot of money. For example, on a loan of $300,000 at 7 per cent over 30 years, if a consumer were to pay an additional $54 per month, the loan would be paid one year and eight months earlier saving more than $25,000 in interest.
By making a lump-sum payment into your mortgage could make a significant difference. E.g. by paying an additional $500 into your loan per year you could reduce the overall term by one month and reduce the total repayments by approximately $2350 and by doing this annually, would make an even bigger dent in your mortgage.
By having the addition of an off setter account you can reduce the loan balance on which the monthly interest is calculated. The saving on the interest cost is a return set at the mortgage rate and is tax-free, because there is no capital gains tax on the sale of a family home.