Savings fall as families feel pinch

Credit card spending has began to increase as households put less money aside for a rainy day, with experts warning Australian to stay in top of repayments after a dozen rate rises.

Savings rates have plummeted to the lowest levels in more than 15 years, according to figures from the Australian Bureau of Statistics. Picture: Richard Dobson

The squeeze of a dozen interest rate rises is beginning to be felt by Australian households that are saving less and spending more on credit cards.

Housing costs have soared across the board over the past year while many have stumped up more for groceries and essential services as the Reserve Bank looked to tackle runaway inflation with the fastest hike of interest rates in a generation.

Savings rates have plummeted to the lowest levels in more than 15 years, according to figures from the Australian Bureau of Statistics. After peaking at the start of the pandemic, households are now putting away less than 5 per cent of incomes. Meanwhile, ­Ratecity’s analysis of RBA figures shows credit card spending is the highest since the onset of the pandemic, with personal transactions up 2.2 per cent over the year.

RateCity research director Sally Tindall warned those with credit card to stay diligent and be mindful of their budgets in the current economic environment.

“As soon as you’re reaching for something like a credit card to plug a hole in your budget, you’re igniting a ticking time bomb,” Ms Tindall said.

“In many cases, if you can’t clear that, what will happen the next month is you’ll get hit with interest charges on top of all of your regular expenses … and make a bad situation worse.”

When the cash rate fell to 0.10 per cent – the lowest on record – Australians began to save rapidly, banking almost a quarter (23.6 per cent) of their pay at the peak of the pandemic in June 2020. These high saving levels gave the RBA confidence at the start of the rate cycle, but recent statements from the central bank have been less optimistic.

Ms Tindall said there was a ­silver lining, with spenders largely being able to pay off their credit card spending at the moment.