A few years ago I had very little in savings in my savings account, let’s be honest and say I had nothing in my savings account after having to spend all my savings on child care fees before my son went to school while I was finishing my degree at university. It was a tough time and when I started living pay cheque to pay cheque I had to really evaluate my financial position.
I found that my Big Four bank account was giving me very little interest post financial crisis. Where I used to get about 6.00 % in about 2007 I was now getting less than 3.00 % in 2013. The bank had also charged ridiculous fees such as a $35 fee for overdrawing my account by $20. I decided that something had to be done to change my financial situation and getting low interest and paying $6/month in bank fees to a Big Four bank (with billion dollar profits) was not going to cut it anymore.
So I started to do my research and looked up savings account interest rates online for local banks, credit unions and international subsidiaries operating in Australia. I found the best rate offered at that time was with ING Direct (now ING). I had banked with ING in the Netherlands so it was more familiar to me than other online high interest bank accounts. I didn’t have any savings so I didn’t really have much to loose anyway.
The positives for me were that there were no bank fees and that I could withdraw from ATMs for free (when I opened the account you had to withdraw $200 or more for the ATM fee to be paid by ING, now it’s any amount) or withdraw as cashout from the supermarket for free. If I deposited more than $1000 a month to my linked transaction account I would get a higher interest rate on my ING Savings Maximiser account which at the time it was about 3.8 % c. 2013, compared with my 3.00 % now it’s 2.8 % which is to the best of my knowledge still higher than all other online savings accounts in Australia, and much higher than the old Big Four bank account which is currently offering only ~0.81 %.
I actually kept my Big Four transaction account so that I could use cheques to pay my rent (by another financial justification because it was the lesser of two evils when it came to paying my rent). However it is only used and kept open for that reason. If I didn’t need cheques or my new bank account had that functionality I would close it in a heartbeat.
When I recently complained about my low interest rate on my online savings account to the Big Four bank they offered me the same interest rate the offer their new customers, which was ~2.30% for 3 months because I was “a long time customer”, which is really crappy considering I get 2.80% in my ING bank account all the time.
I went with ING because they were familiar to me, but there are other banks and credit unions that offer no monthly fees on savings and transaction accounts, online only high interest accounts. Money magazine ranked them highest that year in that category which was another reason I went with them. And I’m Dutch, so I like orange.
I’ve never really looked back since opening up my online no fee bank account. I deposit my salary into it and I save what I can each fortnight. With ING you can have more than one savings account and give them different names. The down side to this is that the secondary savings account does not attract the higher interest rate, the current rate as of January 2018 is 1.35% which is still higher than the Big Four account. However the advantage is you can have different accounts for different things which makes saving easier.
I have one primary Savings Maximiser account that I NEVER touch (as in I never withdraw from it), which is my home deposit savings account, originally it was going to be for a holiday to Europe, but after some deliberation of my priorities I decided purchasing our own home might be more important than a holiday. It receives the higher interest rate and contains the bulk of my savings. I have a secondary savings account where I save up for bills, school fees and other expenses which gets used regularly.
Because I often can’t afford to pay big bills like the electricity bill out of my fortnightly salary, having an account where I can save a bit each week so I have enough to cover all my bills when they come in is really handy. I also use this account to save for trips to Queensland to see my parents or little getaways once in a while or any large purchase, like a new computer or washing machine. I’ve called it “Expenses Rainy Day” account, but it could have easily been called “Bills and Expenses” account.
I said earlier that I kept my Big Four bank account for the cheque functionality, I did also keep the online savings account because it attracts no fees and I wanted to see if the interest rate would improve, but I again don’t touch this account. I kept this account because I am a highly skeptical and somewhat pessimistic person. I don’t place a huge amount of trust in any financial institution. I kept this account basically in the case there is a real emergency, and I need a few thousand dollars. A while ago I worked out the cost of moving house if we were evicted and our landlord refused to give us our bond back and we lost the tribunal would be about $3000. That would cover the cost of paying a new bond and movers to keep a roof over our heads. I decided that $3000 was the baseline savings I had to have for a real emergency.
I kept it in that bank because I wanted to spread my cash investments, like you would if you were investing in the stock market. You wouldn’t just invest all your money in one firm in case that firm failed. I figured in the worst case scenario, if Australia were to have a Greek style collapse of the banking system, I’d want my money to be in more than one bank. I never want to be in a situation where I loose everything because my bank fails and the government fails to bail them out. Luckily the chances of this happening are very low in Australia, but like I said, I’m a skeptical person. The fact that it’s in another institution to my transaction account means I am also less likely to be tempted to dip into this money.
Recently I’ve been looking at my dismal ~0.80% interest on this account and thinking along the lines of John Bull and 2% interest rates, to paraphrase, John Bull can stand many things but he cannot stand 2% and this is less than half that amount. So I have been researching interest rates again to see if I can find a better deal for my $3k that is at least in line with inflation. The best I’ve found so far is Suncorp’s eOptions account, currently offering 1.55% on savings, which is almost twice the rate of my unhappy account. It’s a bricks and mortar bank rather than purely online and it is larger than some of the other “small banks”. This would be a much healthier interest rate for my emergency fund. An account can easily be opened online, but the drawback is the easiest way to withdraw money due to Suncorp’s token and secondary password system is to also open a linked transaction account. The best thing to do is to either not get the card and go to a branch directly to withdraw funds or destroy the card or if you can’t bring yourself to do that put this card somewhere safe where it won’t be stolen and basically forget you have it, for instance if you keep your title deeds or another precious possession in the bank then put the card with that. By using another bank there is less temptation to spend my emergency fund money. The card definitely doesn’t belong in my wallet. Really I don’t even need this card, because I can walk into a Suncorp bank to make my withdrawal if that worst case came to be. However if there was a Greek style collapse, the banks may not open their doors and you may need a card to access the ATM.
I have been saving with my partner who gives me about 65 % – 70 % of his pay cheque to pay our bills, rent, sons school fees etc and keeps some aside for himself to buy groceries and general expenses like pay for his various hobbies or if we have a day out. I use his pay cheque for most of our expenses and cost of living and basically try to save as much of my pay cheque as possible. From saving this way and focusing on saving as much as we can afford I have managed to save with my partner over $40 000 over the past 4 years which is more than I could have hoped for considering our living expenses are fairly high in Sydney but I am still working towards having enough for a home deposit. I try to save regularly and save what we can afford.
My partner pays me as soon as his pay cheque clears and I distribute this money as soon as it enters my account (either paying bills immediately or putting into my cheque account for rent or the bills savings account). I put my money into savings as soon as my pay cheque clears so there is no temptation to spend it. Saved money does not exist in my mind as spending money. I figure out approximately how much my major bills like phone, internet, electricity, gas, ambulance insurance, swimming lessons for my son etc for the year cost add a bit extra for unexpected costs and divide that number by 26 weeks, so I know how much I need to save in my bills savings account each pay. I work out how much I need for rent and set that aside too. Then I figure out how much I need to spend on travel and food and leave that in my transaction account and then I put what I have decided I can afford into my home deposit account. Sometimes I might put some of the money destined for the home deposit account into my bills account just in case other expenses come up like an expensive school camp or new school uniforms or shoes.
I try to be aware about my expenses but I don’t let my self worry about bills because I know I am prepared and I have enough to cover all my bills saved. It’s a nice feeling to have peace of mind, and takes away a lot of stress in your life.
I want to make a disclaimer that you should not take the general advice on my blog as qualified financial advice and that you should make your own decisions or seek advice from an independent qualified financial advisor about your own finances based on your unique circumstances.
I recommend listening to any good financial advice that is offered to you and considering if it is best for your circumstances before following it. Don’t blindly follow what people tell you to do including me, always consider if it’s right for you in your own situation, and if you’re not good with money seek professional advice or go to the government website moneysmart.gov.au
Before I make any major financial decision I always try to remember my friend who in university lost $20 000 that their parents had given them to cover their living expenses on the stock market, thinking they could make a profit and who after loosing all that money was very very poor for the rest of that year. At the time being a poor student myself I could hardly imagine having $20 000 in the bank let alone loosing it on the stock market. Knowing what can happen when you make a poor financial decision made a huge impression on me.
Last Christmas my mother bought me a book called The barefoot investor by Scott Pape. Scott Pape has formed a very similar savings strategy to mine, he is a good writer with a style that is easy to digest and I recommend the first chapter of the 2017 edition on savings accounts. I didn’t follow his strategy when setting up my savings account strategy, I hadn’t even heard of Scott Pape before my mum gave me the book. Previously to me Barefoot was a film from Germany about a girl with mental illness.