Vidya Kathirgamalingam - 13 Dec, 2019

What to do with your savings when interest rates are low

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At the beginning of this month, the Reserve Bank announced that the official cash rate would be left on hold at 0.75% for the third month in a row.

With the interest rates at an all time low, consumers have been left worried about the state of their savings. But did you know that there are certain ways you can actually be using your savings to take advantage of the low interest rates?

Using your savings appropriately has never been more important, and here are some actions you can take if you want to start acting wisely.

Make a savings plan and be financially disciplined

Make a savings plan that takes into consideration the low interest rates. The low-rate environment will mean that you’ll earn less interest on your savings. When devising your savings plan, consider the bank rates that will apply to your savings account and also consider alternatives such as investing in shares. Make sure to also shop around of other bank accounts that you can be using that have a more favourable interest rate so that you aren’t losing money by putting it in the bank.

By accumulating savings and spending less, you can also create buffer for when interest rates increase in the future. You should be prepared for when interest rates increase as this will mean your loan repayments will increase. It’s recommended that you utilise the redraw facility of your loan or add savings to the offset account of your loan if you have one.

Refinance your home loan

The low interest rate environment has also brought with it extremely low mortgage rates. One upside to the low interest rates is that it’s also now easier to refinance with alternative lenders.

Whether you will benefit from this will depend on a number of factors such as your credit score, whether you are a new borrower and the value of your loan. For instance, current borrowers will benefit more than new borrowers due to the fact that they would have accumulated capital gains through increases in house prices and low interest payments.

Start paying off your debts.

Whether it is your student loan, mortgage or credit card debt, this is the prime time to start clearing it all. Make sure to prioritise paying off your debts that have the highest interest rates. The more you prolong the process of repaying your debts, the more interest it will accumulate. So start clearing your debts now while interest rates are low and you may even be able to be free of your debts earlier than anticipated.

Invest in property

The low interest rates have increased borrowing power significantly. As a result, this has made it easier to invest in properties of a higher value. But be sure to also keep in mind what you will have to do when interest rates go up and your loan repayments increase as a result.

Open a high yield savings account

Have you ever heard of a high yield interest account? If you haven’t, you should start looking into one. They’re a kind of deposit account that’s offered by most banks that have a higher interest rate than the typical savings account.

According to business Insider, depositing money into a high yield interest account may be able to earn twenty times more on your savings. If you have a specific saving goal in your mind, it will also be more achievable to reach it by putting your money into this account. You will also find that you will receive a high return of money if interest rates go up.

Consider a term deposit

The economy is at a point where it is as unpredictable as ever. In such a tumultuous period, predictability and security is what you need. A term deposit will be able to provide you with this. In case you are unsure of what a ‘term deposit’ really is, it is when you secure your money for a fixed period at a fixed interest rate. If you’re looking to save money, the ability to secure your money for a certain amount of time will also be useful in limiting how much you spend.

Please note the information in this article does not constitute financial advice. If you need advice on how you can start refinancing your home loan to adapt to the current low interest environment? Contact one of the experienced brokers at eChoice for advice today.  

Words by Vidya Kathirgamalingam

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