Capitalising on cash flow

While Australians aren’t exactly known as a nation of savers, with household savings levels plummeting since the 1970s, the recent financial crisis has served as a healthy reminder that it pays to have money saved ‘for a rainy day’.

But what is the most effective strategy for managing your savings and what options are out there?

Regular savings schemes This is an ideal strategy to build some sort of nest egg, perhaps towards a future goal, but also to keep aside in the case of unemployment or an unexpected health issue.

The best way to save regularly is to organise a direct deposit scheme that channels a set amount of cash into a savings account every month. This ensures you keep your savings on track and will also see you save without even realising it.

While the low Reserve Bank of Australia cash rate means cash returns have fallen in recent months many banks are still offering some pretty compelling deals. Shop around, particularly online, to find the best offers and remember that different banks’ rates do vary significantly – so don’t sign up to the first deal you find.

Term deposits When it comes to capitalising on cash, a term deposit can offer excellent returns. Your money is locked in the bank for a set period and in return the bank will reward you with some of the highest available interest rates.

Your options range anywhere from 30, 60 or 90 days to as long as several years; the larger the deposit and the longer the term, the higher the return will generally be.

The downside is you’ll be charged a fee if you break the agreed term which may cancel out any interest that’s been earned.

Mortgage offset account Extra savings can be used to offset the amount owed on your mortgage. While this approach doesn’t earn you interest on your savings it reduces the interest you pay on your home loan. Your daily cash deposit amount is effectively deducted from the overall sum owing on your mortgage, reducing the interest repayment. At today’s rates that can be equivalent to a saving of 5 per cent or more, and because you are saving rather than earning interest, it is non-taxable!