WE’VE had interest rate rise after rate rise since October 2009 and we haven’t had any relief at the checkout either, with prices of goods and services also being hiked up by our retailers. But with the announcement of the federal budget, we can be hopeful of some benefits for our savings.
In the budget announced on May 11 Treasurer Wayne Swan announced a 50 percent discount on tax on the first $1000 of interest earned on deposits, bonds, debentures and annuity products from July 1, 2011.
“This change is expected to make interest-bearing products more attractive to savers, which will have positive flow-on effects for competition in our financial system,” Swan said.
But will this have much effect on the cost of living? The Australian Bureau of Statistics recorded higher costs of goods such as medicines pharmaceuticals has increased by a staggering 13.3 percent in the March quarter compared to the December quarter and our green groceries have risen by 10.3 percent.
You may not have noticed the cost of your supermarket trolley rise very much since last year but with the added sting of higher mortgage repayments, I know my budget has taken a trimming.
It makes you wonder how we are going to afford any little luxuries this year, from the annual Christmas holiday to the fortnightly dinner at a restaurant. I’m sure more households will be getting more creative with gourmet toasted sandwiches for dinner to cut down on costs, thanks to all of the cooking shows on our TV screens. Caramelised onions and corned beef does sound like a good combination.
Perhaps you will try to cut back on the shopping with cheaper alternatives like the “no frills” selections or try baking your own bread. That is until you realise spending $100 on a new bread-making machine won’t pay for itself until you make at least 20 loaves of bread, and so it gets stored at the back of the pantry next to the waffle maker and food processor.
Whether the federal government decided to lend a hand to help out our savings accounts in the budget or not, with the reforms on the amount tax on interest from savings, for most of us with a mortgage it will do little to ease our cost of living pressures.
So if you do have a mortgage, you should consider cancelling your savings account and opening up an offset account and pool your cash into it. Not only will you help ease the impact of rising interest rates with the balance offsetting your home loan but you could save on interest and potentially reduce the loan term.
With the current taxes for the interest earned on your savings as the same as your tax rate, RateCity’s calculations found that the interest rate on your savings account would need to be at least 10 percent to be worth storing your funds in there compared to adding it to your mortgage.
The federal government is not being all that generous when it comes to our savings accounts, so make sure you use all of your surplus cash wisely this year and save it where you will benefit more than the government!
Michelle Hutchison is Consumer Advocate at RateCity.
The above information is general only and does not take into account your objectives, financial situation or needs.
Your say: Do you think the federal government should be more generous with your tax rate on your savings? What did you think of the Federal Budget? Will you be changing your savings strategy? Email us on [email protected]
