MANAGING YOUR CASH HOLDINGS
In this blog post we will be exploring:
– Why you should have a savings account
– What offers are currently out there
– What financial institution I have chosen for my savings
This is something which I should have done over a year ago when I started full-time work after uni lol. But better late than never.
Reasons for having a savings account
· It is good practice to have a separate account dedicated for holding the majority of my cash rather than my everyday account. I think it’s also good to set up a system for myself where I will automatically invest x amount of my money into this savings account.
· In just the everyday account I don’t know how much interest, if any, my money is making. I think it was just at 0.1%ish, which isn’t much at all. We can do much better.
Nowadays the interest on savings account seem to be pretty low – the ongoing interest rate can vary between 0.5% – 1.8%, and averages at around 1.15% (from a quick estimate). I was having a look at what the rates were in previous years, and it seemed to be quite high as compared to what is available today. Potentially because of what is going on in the market right now.
The rate of inflation over the past 5 years has been averaging at 1.6% p.a. which is quite a lot. For example, that would be ~= $400 lost if I had kept 25,000 in a zero interest bank account. So it would be wise to have your money not only combat inflation, but maybe gain a little bit of interest on top of that.
So, what I’ve found is that:
· Some high interest savings accounts (1.9-2.5%+) may seem enticing, however this interest rate is enforced only within the introductory period of ~4months, then will revert to some lower rate (maybe around .5%-1.1%) afterwards, which is less than the rate of inflation and you’ll be losing money.
· From the looks of things, when looking around for a savings account it seems the bare minimum criteria for something that I would take into consideration is choosing a financial institution which will, at the very least, break even with the rate of inflation.
· Some financial institutions do offer base interest rates if their conditions are being met, ranging from 1 – 1.8% interest. Some conditions include:
o Minimum x (usually 5) transactions using the bank’s card
o Deposit $x (usually $200) each month
o Maximum (if any) withdrawal limit
Choosing a financial institution
After looking around, I came across Suncorp’s savings account. They offer 1.8% interest rate if these conditions are met monthly:
· Deposit $200 a month
· <=1 transaction a month.
The reason I decided to go with Suncorp is because of the simple conditions. I think it may be quite inconvenient to always be mindful of completing 5 transactions a month, as per conditions offered by other financial institutions offering a similar competitive interest rate.
Comments/Summary
I’m quite happy with the savings account offered by Suncorp because of their easy conditions and relatively high interest savings rate.
The reason I decided to open a savings account was because I want to take a more oriented and structured approach to organising my finances. Ultimately, I would like to have a set asset allocation which will best suit me.
Further Action
Now that I’ve set up my savings account I know where one part of my assets (cash) for my asset allocation can go to grow. My next course of action is to further go into detail what my asset allocation plan will be, including:
· My portfolio: Where my money will be invested in (index funds, shares, bonds, ETFs, commodities, rare metals, etc.)
· Superannuation: I will be exploring the world of superannuation/retirement funds. This will comprise of exploring information, ideas, and myths with regards to your super fund, and will go over some tips on how to see if the money in your super is working the best it can for you!
