This is part two of Nicole Pedersen-McKinnon’s two-part strategy on how to ditch debt and organise your finances for 2023. It’s a template for new year success, all laid out in simple steps for you. Read part one: Australia’s lowest loans and cut-price cards, here.
The ‘she’ll be right’ Aussie is morphing into the ‘she’ll be responsible’ one as cost-of-living pressures - across just about everything - bite.
Not only are we reducing debt, we are also stashing our cash, and that’s a smart money move.
Read more from Nicole Pedersen-McKinnon:
As the clock ticks over to a new (tighter) year, your top savings resolution should be to build what I call a ‘Holy Shit’ fund.This is an emergency fund for if or when 'shit' happens. Because it might, and a financial buffer could prove vital to your level of comfort and even solvency.
You can build it slowly and surely over time but a ‘war chest’ equivalent to six months’ salary is ideal.
Then there is amassing money for all the good stuff you want in your life this year: that new couch or car or overseas holiday.
The great news for savers in 2023 is that, finally, you can earn decent rates.
The top-paying at-call products
First, we will look at the accounts that pay the most without qualification conditions.
In just the week before Christmas, Canstar said 22 providers increased savings rates on 35 accounts. The maximum ongoing savings account rate today is 3.75 per cent. This compares with an average rate of 0.91 per cent.
You can see in Mozo’s table below that it’s a three-way tie for that top rate, between ANZ, Australian Unity and Bankwest. While you can get a promo rate of 4.5 per cent for four months elsewhere, you would only bother with such a short-term boost if you had a lot of money.
The top-paying bonus accounts
If you can clear certain hurdles each month, you could do even better than standard at-call accounts.
Contingent upon some conditions that may be achievable, so-called bonus saver accounts pay a base rate and then, yes, a bonus above this. And they are more generous right now than they have been in years. The maximum rate is 4.55 per cent and the average rate is 3.05 per cent.
The table below tells the story.
At the fore, once again, is the ING Savings Maximiser. You need an Orange Everyday account too and each month deposit at least $1,000 into a personal ING account. You must also make at least five settled card purchases using the linked ING debit card and grow the account balance at the end of the month (excluding interest), versus the previous month.
For dedicated savers, and money you do not intend to access often, these conditions could be manageable.
Note that an even-higher rate of 4.75 per cent is available from Bank of Queensland (BOQ) for 14-to-35-year-olds with a balance of up to $50,000.
The top-paying term deposits
For savers who are willing to lock their money away entirely for a period, the rates can be high too.
Canstar said 19 providers increased 133 rates by an average of 31 basis points with a maximum increase of 175 basis points, as the December rate rise kicked in the week before Christmas.
But interestingly – and unusually – you don’t get much more interest for locking your money away for longer. The average rate for a one-year term deposit is 3.75 per cent, for two years, 3.85 per cent, three years, 3.78 per cent, four years, 3.7 per cent, and for five years, 3.73 per cent.
This is a clear indication that official interest rates are expected to go down – indeed, analysts still believe they could start to fall in the middle of 2023.
Mozo said the maximum one-year term deposit rate was 4.40 per cent (from Firstmac), for two years, 4.55 per cent, for three and four years, 4.5 per cent, and for five years it was 4.6 per cent.
The strategy better than savings accounts
So, it’s happy days if you have savings or intend to start saving this year… finally you can earn some decent money on deposits.
But don’t miss that inflation – or the rate of price increases in the economy – is above 7 per cent.
No savings account pays this much so, in what’s called ‘real’ terms, your money will still be going backward.
That’s why, even more than at regular times, if you have a mortgage, there is a far smarter option.
Housing your cash in an offset account that runs alongside your home loan will give you an interest saving identical to your mortgage interest rate. This rate will likely be about 100 basis points higher than what you can earn in a savings account.
Better still, because you don’t actually make this money but instead save it, there will be no tax to pay.
From any interest you physically earn, you’ll lose a fair bit to the Australian Taxation Office.
And extra money in an offset account is not only safe and sitting there quarantined, ready for its intended purpose, but could slash your mortgage term and bring your debt-freedom date dramatically and happily forward.