Interest rates have dropped again to a record low of 0.10%. What does this mean for those with savings and those living on interest?
For some retirees who began working well before compulsory superannuation was introduced, living off their super or pension is not option. This generation needed to fund their retirement outside of super and many have done this through high interest savings accounts. With interest rates struggling to get up to 1% in term deposits and high interest savings accounts, those living on the interest of their savings may be struggling with lower levels of income.
There are a few options, chasing the best rate is one but this can be time consuming, cumbersome and unlikely to produce real results, it could also cost you more in fees. That being said, it is definitely worth looking around to see if you are getting the best deal. Your financial adviser can help you with this.
Other options include reducing your living costs. The RBA have stated that rates are likely to stay at a low rate for “years”, so you’ll need to consider if a change to your lifestyle for the medium term is feasible. You could also begin to use your savings capital, the risk of which is that you lower the interest you’re earning, and you could run out of money sooner than you’d hoped. This may not be an issue if you think you have enough to see you through and you’re ok with not leaving an inheritance for future generations. It’s your money after all.
If your income and the value of your assets have dropped, you may be eligible for the Aged Pension or if you’re already receiving a part pension, you may be able to receive more. Our advisers can help you understand if you may be eligible.
Another option is to consider different types of investments, we have some information on three investments for retirees outside of super here. These include annuities, fixed income / bond funds and investing in infrastructure or real assets. Generally, investments are considered for long term goals so for those in retirement it may not be the right option.
It’s best to seek professional advice to help make these investment decisions. Good advisers understand how to mix investments across different categories to reduce risk while delivering returns.
As mentioned above, investments should generally be considered for long term goals. This is to address any market fluctuations and manage the risk involved in investing. For example, markets headed south during March and April which caused panic for some, but we are now some seeing gains.
If you have some longer-term goals and think an investment might be the right option for you, then talk to a professional financial adviser first. There are many things you’ll need to consider including your appetite for risk, what you want to achieve and how long you will be investing for.
For those who wish to keep saving, it pays to look around and ensure you’re getting the best rate possible. Make sure you look at the fine print as some accounts will offer a higher rate but only if you deposit a certain amount, make a number of transaction or move your daily banking to that provider. A mix of cash and investments may also prove beneficial, ensuring you have enough cash now with potential growth coming through in the future.
The benefits of saving are having quick access to your cash should you need it. Others like the security of knowing that savings accounts are protected by the Australian Government Guarantee Scheme. Or perhaps you just like the security of knowing that you control when and how the balance goes down.
The good news for those with mortgages is that the mortgage rate has been lowered by many banks. There is an option here to cut your mortgage by continuing to make the same payments as before the rate was lowered, chipping away at the principal.
Whether you should keep your cash in savings or invest is a decision that could have a huge bearing on your quality of life. As we have stated several times throughout, professional financial advice will help make sure you are making the right decision for your individual circumstances.
It is very important that you understand that the information above is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. It is also worth noting that the Australian financial and taxation system is ever changing, and the information above may no longer be relevant. Again, we suggest seeking professional advice from a financial adviser before proceeding.