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15/06/2023
How many Australians have money sitting in their everyday transaction accounts, metaphorically gathering dust, when in fact this money could be earning valuable interest?
While cost of living pressures and high interest rates charged on loans are putting a squeeze on household budgets, Rabobank’s Head of Online Savings, Julie Blanchard and Senior Manager for Deposit Products, Andrew Fartek believe the current high interest rate environment presents a prudent opportunity to make savings work harder, no matter how much, or little, you can afford to put away.
Andrew said across Australia, 30 per cent of people know exactly what they’re earning on their savings, 30 per cent have some idea, and a third have no idea – and that there’s a lot of, what he refers to as ‘lazy money’ sitting in zero rate transaction accounts.
The first tip in maximising savings, he believes, is to separate savings into a dedicated account.
“If you’ve got all your transaction accounts with one bank, and savings account there, you’re probably more tempted to use that money, but If you’ve opened a savings account with Rabobank then there’s a little bit more effort required in transferring that money across to your everyday account where you can just tap and go.”
“It’s that additional step to help avoid the temptation of spending your savings on something you don’t really need.”
Julie agreed, and said people who are earning a good, regular wage and can afford to put a bit away should be taking advantage of the higher interest rates.
“If your salary is all going into an everyday transactional account, people tend to become a bit lazy moving it across into a savings account.”
She said an automatic direct debit into a savings account means they can ‘set and forget’, or if people want flexibility, they can control it themselves through online transfers.
“Many people set accounts up for a purpose at a point in time – all of a sudden some interest earned over a few years adds up pretty quickly – especially in this interest rate environment, compared to earning nothing in a transactional account.”
A variety of Rabobank saving options, to suit a variety of needs
With one of the widest range of savings options, Andrew believed Rabobank had a savings product to suit every need, from the High Interest Savings Account to the Term Deposit, the Notice Saver and the Premium Saver – or a strategy combining a number of these options.
He said the Premium Saver, which helped reinforce positive saving habits, was currently a popular choice helping people put even a little bit away, regularly.
“Our Premium Saver enables a higher rate of interest just for increasing your balance by at least $200 each month, helping create smart savings habits without necessarily eating into too much of your household budget.”
Julie agreed, and said that for young families, or those who don’t have a lot of savings at the moment, this premium saver style product was reflective of the old ‘piggy bank’ style of saving.
“If someone wants to commit to saving just $200 per month they will earn the highest rate of interest on the Premium Saver, and by putting a little bit away regularly this helps them achieve a savings goal, whether it’s for a holiday or a new kitchen.”
She said this approach to saving was well suited to someone wanting that extra incentive to help them with their savings pattern, and that they’ll be rewarded by earning the highest rate of interest if they increase their balance by $200 before the end of each month.
The key differentiator of Rabobank’s Premium Saver compared to similar products on the market is that if someone doesn’t make the $200 increase, there’s not a significant interest rate penalty.
“There’s not a huge difference if someone isn’t eligible for the maximum rate, which is quite unique – at Rabobank we want to encourage savings even if people can’t meet the conditions to earn the maximum rate.”
A long term outlook for higher rates
Andrew said there had been renewed interest in Term Deposits, and anyone with extra money to put away were locking in for terms of six to 12 months, or even up to five years to take advantage of the higher interest rate environment.
Term Deposits allow customers to lock in their savings and get a guaranteed return. They can start from as little as $1,000, with terms from one month to five years.
“This option is particularly attractive to retirees who need money to live on – a longer-term Term Deposit enables them to elect to receive monthly interest, which can be used to cover their living expenses,” he said.
Taking advantage of rate increases, with few restrictions
The Notice Saver was also a popular savings enhancer, and with no minimum contribution required and a variable interest rate, Andrew said this was a product ideal for people who don’t need instant access to their savings.
“This is perfect for those keen to benefit from a higher rate of return, but are happy to wait 31, 60, or 90 days to access their money,” he said.
Julie warned, however, that as a variable rate product, there was a risk associated with interest rate changes.
Rabobank’s Head of Online Savings, Julie Blanchard.
“While we can’t see interest rates going down any time soon, the key thing to remember is that while rates are going up, Notice Saver customers get the benefit of those rate increases, but while rates are going down, so too will the earning capacity of their savings.”
As opposed to a fixed term deposit, whereby accounts can’t be increased or withdrawn without breaking the term deposit, Julie said the Notice Saver had very few restrictions.
“You can increase your balance, and obviously receive interest rate changes when they move, but there’s no requirement to continue regular contributions, you just need to give notice when you want to take funds out.”
“So this product is a really good alternative for people looking for a little bit of flexibility or wanting to shuffle and maximise their returns when they don’t need immediate access to that money at any particular point in time.”
She said the Notice Saver was also a valuable option for those with a Self-Managed Super Fund (SMSF).
“For people wanting to save for retirement, or leverage good rates of return on retirement income, having something like a Notice Saver as part of a hybrid range of investment options is a really attractive proposition.”
“A lot of our customers have money spread across a number of products, a little in the HISA with no conditions so they can access cash any time or for an emergency, and if they want to lock a bit more away at a higher rate for a six months or 12 month longer term deposit, and then they can put some in Notice Saver and Premium Saver if they want that additional incentive to grow their saving balance.”
Uncomplicate your savings
Another popular option was the High Interest Savings Account (HISA), enabling savers to get the most out of every dollar saved, without changing their everyday bank.
One of the best features of the HISA, Andrew believes, is that it pays a reasonably competitive ongoing rate, with zero conditions – “You can throw money into it, and draw money out of it, and you’re not penalised.”
Starting with a higher introductory interest rate, then reverting to the ongoing standard rate after four months, he said the big differentiator between this account and those similar on the market is its lack of conditions.
“You don’t have to do anything – there’s no requirement to grow your savings, or open up a linked transaction account, or switch banks – you can keep your transaction accounts with Commonwealth, NAB or Westpac, but if you want to earn that little bit of extra cash every month and have some additional incentives to save, then switching your savings over to Rabobank is a great option,” he said.
Julie agreed that some savings accounts on the market had become quite convoluted, requiring transaction accounts and a minimum number of transactions per month.
“There’s a whole range of hoops people need to jump through to earn that higher rate of interest, and we don’t have any of that - you simply open up your account online, you get the higher introductory account immediately and then an ongoing rate that is still in the top end of rates being paid in the market, with no conditions.”
“Even if you can’t commit to a regular amount to save every month, the HISA is separate, you can’t access it quickly, it gives you a little bit of protection in regards to keeping money separate to your everyday banking – it’s something dedicated for a purpose and intent.”
“While cost of living pressures are starting to impact across the board, having that structure and rigour of $100 this week or $100 this month, just having that pattern of putting a little bit away for a purpose is a healthy habit that you will be rewarded for.”
Julie said that, with a lot of very rate savvy clients, Rabobank was proud to be offering a savings and investment specialist product range whereby clients can be assured that they’re getting a great rate of return on their money.
Their savings are also being used for a greater purpose, going towards Rabobank’s proposition of feeding the world, and funding farmers and agricultural businesses.
And whether you’re a retiree, pre-retiree, young family or a savvy single, they key to maximise savings was to separate your savings.
“Having the structure of a savings account separate to your day-to-day account helps keep temptation at bay – those funds are less top of mind and less easy to access immediately – which all helps when trying to meet savings goals,” Julie said.