What should you do with your savings? Nothing at all

If you’re an Australian with money currently in a savings account, I have some good news and some great news for you.

First, let’s begin with the good: to utilise your money and truly get the most out of it, right now, you actually don’t need to do anything or lift a finger, the hard work is already done.

To utilise your money and truly get the most out of it, right now, you actually don’t need to lift a finger.Credit: Dionne Gain

We’ll get to why that is in just a moment. But first, the great news: it doesn’t matter how much or how little is in said savings account. Whether you’re among the 45 per cent of Australians with approximately $1000 or less in savings or lucky enough to find yourself with the national average of $37,915 in savings, it all counts.

So, why am I telling you to effectively do nothing with your savings instead of, say, talking about long-term investment strategies like exchange-traded funds, stocks, voluntary super contributions or other common streams of wealth generation that would normally be a go-to when trying to make your money do the most? I’m so glad you asked.

Ironically, it has to do with the source of so much of the pain we’ve been feeling for some time now across the economy, and that is our increasing interest rates.

Though the Reserve Bank of Australia failed to stick to former governor Philip Lowe’s 2021 promise of not raising interest rates until “at least 2024,” and we’ve been feeling the crunch since the RBA began raising rates in May 2022, the flip side to all this is that banks are also currently offering higher interest rates on savings accounts.

It’s worth remembering that a return rate of 5.5 per cent per annum on any investment is nothing to scoff at.

There are a couple of 101 principles when it comes to investing money, and they may vary depending on who you ask. To me, two of the most important core basics for anyone are: Be educated about how you’re investing your money and what you’re investing in before taking the plunge, and ensure that your strategy is right for you.

Sometimes, especially among those wanting to increase their wealth quickly, people can invest without being fully across the risks and potential rewards, which is particularly common when it comes to cryptocurrency.

But just like personal style or facial hair, your investment goals and strategy should be uniquely your own. It’s fine for it to be influenced or inspired by someone else, but ultimately, you’re the one who has to wear it, and no one wants to be the person with the savings and investment equivalent of Claire’s crisis haircut in Fleabag.

This week, the global financial market had what could most politely be described as a bumpy week across the stock market and cryptocurrency sectors. Though the recovery from the start of the week has been decent, the speed and size of the drop have understandably spooked many. And with an election looming in the US and fears of a recession both here and in America, the harsh reality is that we’re not out of the woods just yet.

The looming US election could spell more trouble for share markets.Credit: Bethany Rae

Which brings me back to interest rates, keeping your hard-earned money right where it is, and the unique economic position we currently find ourselves in. While investing is something that everyone should be doing – I’m a firm believer in putting every dollar to work the minute it hits your bank account – given the current economic climate, and what we’ve seen over the past 10 days, the prospect of doing anything at all with your money might feel seriously risky.

Where previous yearly rates for high-interest savings accounts sat at below 1 per cent, many are now offering rates of around 5.5 per cent. By any measure, that’s a seriously decent return for something whose only job is to sit there and look pretty until it’s called upon at a later date.

The main benefits of high-interest savings accounts are that while the interest rates are annual, you receive the interest in your account monthly, meaning it’s helping you increase your savings balance every 30 days.

They also allow you to access your savings if and when you need them should an emergency arise, and, finally, most of them aren’t linked to a debit card, which makes dipping into them on a whim that little bit harder. If you’re saving for a holiday in 12 months’ time, a wedding, a house deposit or want to see your emergency fund flourish, this is the ultimate cherry on top.

If you’re in the category of people who have $37,915 in the bank, you might think 5.5 per cent sounds okay, but not as promising as other investment options. And that’s true, of course.

But if you’re feeling risk-averse presently or if you’re among the 45 per cent of Australians with $1000 or less in the bank, this is a great option because it allows you to continue building up your long-term savings at your own pace and be rewarded for it in real time. Also, it’s worth remembering that a return rate of 5.5 per cent per annum on any investment is nothing to scoff at!

The most important things to do before moving your savings into a high-interest account is to check your financial institution’s conditions. Some banks will only offer the high rates if an amount remains in the account for a certain period of time, others require minimum monthly contributions, and some may have minimum wait times like seven to 30 days to allow you to access your savings should you need them.

As I said, news both good and great.

Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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