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SAVING

The secret to successful saving is simple. Start now.

Put away a small amount each pay. Set up an automatic deduction so you don't have to think about it. Put the money into an account that pays interest.

Follow these steps, get the saving habit and you will soon see the pay-off. You'll see the benefits of compound interest as you watch your bank balance grow.

Why save?

What is compound interest?

How to get started

Where to save

Other investment products

What to look for in an account

As your savings grow you'll find you won't have to reach for your credit card so often. And, if you stick at it, you may achieve more substantial goals, such as having a deposit on a house.

The bottom line

Saving for big expenses instead of using a credit card pays off twice - you earn interest on your savings and you don't pay interest on the card.
Have a small amount deducted from your pay directed to a savings account. Your savings will grow automatically and you won't have to do a thing.

Why save?

In the short-term, having savings frees you from the stress of living from one payday to the next. Having some money set aside helps you deal with large bills or unexpected expenses. If you use your savings rather than borrowing the money, you won't have to worry about repaying the debt with interest later on. Not only will you avoid paying interest, your savings account will be earning interest for you.

As your savings build you will be able to think beyond day-to-day expenses and pay for larger things, like a holiday, a new computer or a car, without going into debt.

In the medium-term, you can save larger amounts for things like a deposit on a house. And in the long-term, you can aim to have enough money saved to give you more choices when you retire. If you go down this path, you may want to think about putting your savings into investments that will grow your wealth. See Investing.

What is compound interest?

Most bank, building society and credit union accounts pay interest. You might be tempted to spend your interest payments when you get them. But if you leave them in your account, you will earn interest on the interest payments as well as on the money you put away. This is called compound interest. It will give your savings an extra boost, so long as you resist the temptation to dip into them too often.

You can find calculators on the internet that demonstrate the power of compound interest. They can help you decide how much you need to save regularly to reach a set target and how long it will take to get there. See More information.

Make it happen

Compound interest really pays off when you are saving for something you want in a few years, like a house deposit.
Set yourself a goal, set up an automatic deduction from your pay, sit back and watch your savings grow.

How to get started

Decide how much you want to save and choose an account to put it in.

You can start saving now even if you haven't had time to work out a budget. Just pick a small amount to set aside each pay day. Some people choose a set percentage of their pay - say 5% or 10%. Others save a standard amount such as $20 or $50. It doesn't matter if you start small. The aim is to get into the saving habit now.

Ask your employer or your bank, building society or credit union to put this money automatically into your savings account each pay. This takes the work out of saving as you won't have to remember to put the money away.

When you get used to saving a small amount regularly, you can look at your expenses to see if you can afford to save more. A budget can help you do this.

Think about planning your saving. Aim for specific goals. In the early days, keep your plans simple. For example, you might plan to have enough saved to cover big bills you get every quarter. Or you could plan to save enough over the year to pay for a holiday. Use a budget to help you plan. See Budgeting.

Where to save

Talk to your bank, building society or credit union about the accounts they offer. Typical savings products include savings accounts, special purpose accounts and term deposit accounts.

Savings accounts

let you take money out when you want (may be subject to daily limits)

interest rates may vary (e.g. some accounts pay very low interest, while some online savings accounts pay relatively high rates)

may offer benefits (e.g. higher interest, reduced fees) if the balance stays above a minimum amount

day-to-day or transaction accounts can be started with an opening deposit as little as $1

cash management accounts can require an opening deposit of a few thousand dollars but usually pay higher interest

can be useful for day-to-day transactions and short-term saving (e.g. for bills)

Special purpose savings accounts

offer incentives to save (e.g. higher interest if regular deposits are made or no money is withdrawn in a particular period)

may be designed to help meet particular goals (e.g. Christmas Club account)

Term deposit accounts

you can't take money out until the end of the term which can range from 30 days to 5 years

higher interest rates than transaction accounts and the rate is fixed for the duration of the term

can be useful if you've saved a few thousand dollars that you want to keep for a future goal - a term deposit account will prevent you dipping into the money sooner than you had planned and will pay more interest than a savings account

Other investment products

There are a lot of investment products to choose from. Savings can be invested in the share market, managed funds, property, bonds and debentures. You can also decide to make extra payments into your superannuation. There are several questions to think about before you decide which investments might be best for you.

How much money do you want to invest?

Do you want your money to grow or to give you an income or both?

Do you want to get your money out easily or are you happy to put it away for a few years?

What level of risk are you comfortable with?

See Investing and Superannuation for more information.

What to look for in an account

When you are looking for the right account to use for your savings, the key features to compare are:

the interest you'll earn

how long you commit your money for and how easy it will be to access

what fees and charges you will pay

You need to work out which account best meets your needs. For example, if you save to cover large bills during the year, you need ready access to your money so a transaction account or a cash management account might be a good choice. If you've saved enough for a house deposit but haven't found the one you want to buy, a term deposit account might be more suited to your needs.

Fees can vary significantly between account types and institutions. Three common types are account keeping fees, transaction fees and one-off charges.

account keeping fees (sometimes called account servicing fees) are usually charged on a flat rate per month and allow you a number of free transactions before fees apply

transaction fees are typically charged for ATM use, online banking transactions, EFTPOS or BPAY

one-off charges usually apply to things like requesting a statement or dishonoured cheques.

It pays to shop around and compare features, interest rates, fees and charges. You may find it useful to have more than one type of account. For example, most of your pay could go into a savings account for day-to-day expenses and small bills while the rest goes into a special purpose savings account for your annual holiday.

More information

There's a lot more that you can find out about saving. See More information.

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