It can be hard to save. And it’s not just me saying that.

Official ABS data shows Australia’s household savings ratio is sitting at less than 1% of income at its latest reading at the end of March 2024.

That’s down from a (seasonally adjusted) high of 24% in June 2020 when everyone was locked down with nowhere to spend their money and the federal government was pumping stimulus cash into the pockets of unsuspecting citizens.

We should have known it would all come to a grizzly end with inflation, rising interest rates, skyrocketing rents and property prices, and increasing cost of living expenses soaking up all that spare cash.

Safe to say, many Australians' savings are not what they used to be, meaning it’s more important than ever to manage your savings to best suit your financial circumstances.

The InfoChoice ‘State of Aussies’ Savings' survey endeavoured to find out just how Aussies are doing that.

How much do Australians have in savings?

Before we delve into where Australians are keeping their hard-earned, let’s take a brief look at the amount we’re talking about.

More than a quarter (27.3%) of the survey’s respondents had less than a month’s income in savings. That jumped to nearly a third (30.9%) of Gen Xers - most likely because of mortgage commitments.

Renters were more than twice as likely to have less than a month’s income in savings compared to homeowners, at 43.2% versus 19.6%.

The rule of thumb for a healthy emergency fund balance is between three to six months' worth of expenses.

But more than half of all respondents (52.2%) had three months' income or less in their savings stash.

The most popular places Aussies keep their savings

For those who have leftover money at the end of each pay period, let’s check the most common places it is stored.

Savings accounts

It’s probably no surprise the most popular place where respondents stored their savings was the humble savings account.

In fact, 57.4% of respondents, regardless of age, said that’s where they kept the bulk of their savings.

There are many advantages to savings accounts, including:

  • they earn interest

  • funds are easy to access

  • they are a safe investment

  • they are government guaranteed up to an amount of $250,000

  • they are affordable, often requiring just a minimum deposit to keep earning interest

But they can come with downsides, including:

  • they are easy to access (yes, this feature can go either way if you’re easily tempted to dip into your savings)

  • some have conditions you need to meet to earn the top interest rate, such as growing the balance every month or not making any withdrawals

  • the interest earnings are generally lower than the returns that can be generated via other investments

  • some may charge you transaction or account-keeping fees

  • interest rates are subject to change according to market rates

Many of these disadvantages can be alleviated by choosing the best savings account for your needs. Many online savings accounts offer better interest rates, giving you good returns while still allowing you to easily access your cash.

It also pays not to be too loyal to your bank or deposit taking institution. Savings account interest rates fluctuate all the time depending on market conditions and the business strategy of the institution you’re with. Terms and conditions attached to accounts may also be subject to change, so it pays to keep on top of the account you sign up for and what else might be available on the market.

Offset accounts

The second most popular place to keep additional cash at 19.2%, according to the survey, was in offset accounts.

Offset accounts are like a transaction or everyday banking account that is linked to a home loan. The money you have in that account ‘offsets’ against the balance of your home loan, effectively reducing the amount of interest you pay each month.

As such, the biggest advantage of an offset account is the money you can save on interest costs for your home loan.

The interest savings generated by offset accounts generally isn’t considered taxable income given it’s money ‘saved’ rather than ‘earned’.

Offset accounts have the ability to save you thousands of dollars over the term of a home loan but come with a few cons.

One is that home loans that come with offset accounts often have higher interest rates or fees than those on basic home loans. Unless you’re planning to store a considerable sum of money in there, you may not actually benefit from an offset account.

Redraw facility

Closely related to an offset account is a redraw facility, used by 4.2% of survey respondents. When offset accounts and redraw facilities are combined, almost one in four respondents reported using these home loan accounts to store most of their spare cash.

This rose to 46.5% of all people with a mortgage and 67.1% of mortgage holders with $50,000 or more in savings.

Similar to an offset account, a redraw facility on a home loan can also save you considerable interest costs but it works a little differently.

You can pay any extra cash, that is, anything on top of your regular mortgage repayments, into your home loan account and redraw it when you need it.

But redraw facilities tend to be less flexible than offset accounts. Sometimes a lender can set stipulations on how much or how little you can withdraw, deposit, or hold in the facility - or how many times you can contribute or access it.

Some lenders will offer redraw facilities free of charge as an add-on to a variable home loan whereas the flexibility of offset accounts can often cost you more.

See also: What’s the difference between redraw facilities and offset accounts?

Transaction account

Just over 8% - or one in 12 - of InfoChoice survey respondents said they kept most of their spare cash in a transaction account.

This is despite many transaction accounts paying little or no interest.

The use of transaction accounts rose to one in five respondents who had savings of $1,000 or less.

Another curiosity of the survey was that transaction accounts were twice as popular in Tasmania than in any other state or territory.

It’s important to note transaction accounts are not the same as savings accounts. Transaction accounts are traditionally used for day-to-day transactions such as paying bills and receiving wages and usually come with a debit card.

Some transaction accounts come with fees so if you use one, beware of your account actually costing you money and look for one with no account keeping fees or minimum monthly deposit requirement.

Some transaction accounts can also hit you with overdraft fees and interest if you spend or withdraw more than the amount you had in there.

Term deposits

Coming in next is term deposits where 6.6% of respondents reported they kept most of their cash. That rose to 13% of older people surveyed, namely those born between 1946-64.

Not surprisingly, term deposits are more popular with older generations who are more likely to be in a financial position to lock away a sum of money for a set length of time - or a ‘term’.

In return for doing so, a term deposit will guarantee a fixed rate of interest at the end of the term. You’ll know exactly what that will be when you make the deposit.

Term deposits are:

  • safe and also government guaranteed for amounts up to $250,000

  • provide reliable fixed earnings

  • a good option if you wish to put your cash out of your reach

However, the fixed nature of a term deposit means you generally can’t access your money (without a notice period and some financial hit) to take advantage of a better deal that may come along in the meantime.

You also have to be on the ball at the end of your term expiry period. Some term deposits will just renew at your current rate and term if you don’t act.

Term deposits often have a minimum lump sum requirement, often between $1,000 - $5,000, so that can be a considerable sum for younger people to lock away when they’re getting their savings established.

See also: Savings accounts vs term deposits: which should you choose?

Cash

Overall, just 1.6% of those surveyed said they kept most of their savings in cold, hard cash with the proportion of cash holders much the same across the spectrum of age groups.

Cash comes with the in-built disadvantage of not earning interest when you’re not using it.

In a high inflation environment, it also loses its purchasing power as prices go up. If you’re keeping your savings in a savings account, for example, the interest you earn on it might be able to offset some of that loss of value.

Of course, cash comes with the additional risk of being lost or stolen and some merchants will no longer accept it as a payment option, preferring to keep their transactions digital for operational reasons.

But some people prefer cash - perhaps for scurrilous reasons in that it’s not traceable but others because they believe handing over physical cash can stop them from overspending if they feel digital savings aren’t ‘real’ money.

What else the survey told us about savings

Income affects savings storage

Where people keep their savings appears to be influenced by income.

The higher the income, the higher the rate of people keeping most of their savings in offset/redraw accounts.

The survey found 42.1% of respondents earning $190,000 and higher kept most of their savings in offset or redraw facilities compared to 32.2% of those in the next income bracket down, between $135,000-$190,000.

The proportions drop as the income ranges fall.

It could indicate those on higher incomes prefer saving interest costs on loans than earning interest which would be taxed at their marginal tax rate.

Tasmanians have less in savings

The survey found more than a quarter (27.1%) of respondents in Tasmania had less than $1,000 in savings.

That was the highest proportion of any state.

As well, two in five Tasmanians reported having less than one month’s income saved, coming in just behind the ACT at 43.2% of respondents.

And as previously mentioned, Tasmanians are more inclined to keep their savings in a transaction account - almost one in five of them according to the survey - even though the accounts were likely earning no interest.

The 18.2% of Tasmanians using transaction accounts for savings was more than double the national average of 8.2%.

Image by Annie Spratt on Unsplash