Just how quickly the economy will recover is not yet clear, but tough times have turned many people’s thoughts to their savings and whether they would have enough to support them through a prolonged downturn or, in the worst case, in the event they’re left without an income.
While we are starting to hear about a more positive economic outlook, the lessons we have learned remain fundamentally important to how we manage our money more effectively to secure our future and realise our goals.
The fundamentals of savings are simple, and we’ve all heard them before—set clear and achievable deadlines; create and follow a realistic budget; establish how much you can afford to save and set up your savings plan accordingly. In practice, it is not always that easy.
Michael Cant, Executive General Manager Retail Products Commonwealth Bank, looks at three possible strategies to help you put your savings on a secure path.
1. Term Deposits
If you’re looking for certainty on your return, or the discipline of locking your money away for a defined period of time, a high-interest Term Deposit account may best meet your needs.
There are a range of options in Term Deposit products based on the length of the deposit term and the corresponding interest rate return. Term Deposits are often the most appropriate vehicle for longer-term, big-ticket savings, such as a deposit for a house or car. They also suit people who may unexpectedly come into an amount of money and are unsure of what to do with it, providing a guaranteed rate for a fixed term off a single commitment.
The main consideration, besides the length of the term, is the impact of potential interest movements over the life of the deposit. Currently longer-term Term Deposits are offering high rates—rather than speculating about future rate increases, certainty can be gained by locking away your funds now. You can further utilise this approach by locking away a portion of funds for a high interest, long-term rate and another portion for a shorter term to maintain flexibility with your funds.
2. Saving accounts
While some people are looking for longer-term certainty, some of us are looking to build up our savings, but want to retain the flexibility and access to funds to cover the unexpected. A high-interest online savings account or Cash Investment Account may be the answer.
Online savers are high-interest accounts linked to your transaction account. They give you instant access to your savings anytime, anywhere via online banking and require no minimum balance and no fixed terms.
Cash Investment Accounts will suit those who have $10,000 or more to invest. Interest is calculated every day and credited monthly, so you’ll notice the returns right away—it could be the ideal place to grow your funds while giving you ready access to your funds when you want them.
With an online savings or Cash Investment Account, you can dip in and out of your funds whenever you want. But remember, you need to deposit money into the account regularly to see it grow and continually put in more than you take out.
3. Diversify your cash
For maximum flexibility, certainty and security, spreading your savings across these options may effectively give you the best of all worlds. For example, people often split their Home Loan across both a fixed rate and also a variable rate, and similarly, you can split your deposit funds across Term Deposits and savings accounts. This helps you gain greater certainty around your interest earnings while maintaining flexibility to take advantage of future opportunities.
Ultimately, there is no “one size fits all” approach. The savings strategies you adopt should depend on your own goals and circumstances.
For more advice on developing your financial strategies visit a Commonwealth Bank branch today. For more information visit www.commbank.com.au
