The Federal budget: savers will have to work harder

Good News for Savers? 

Neither the Federal Government’s budget nor the Reserve Bank announcement yesterday was good news for savers.

The Reserve Bank lowered the official cash rate by 25 basis points to a record low of 1.75% because of concerns about falling inflation and the higher Australian dollar putting a dampener on the country’s international competitiveness.

Treasurer Scott Morrison released a budget saying, several times, that historically low interest rates are supporting economic growth.

The message from both was that borrowing should be encouraged in order to stimulate the economy and create jobs. There was no indication that rates will increase any time soon.

On the superannuation front, taxing the super savings of retirees with balances over $1.6 million has made building a superannuation balance less attractive to some people, including many approaching retirement.

The task for investors is to rise to the challenge and make their savings work by researching the options available.

There will still be opportunities to access a great interest rate for term deposits because at times lenders raise their term deposit rates to meet their own need for funding, the bank equivalent of the supermarket “special”.

Term deposits give the banks the certainty of knowing they will have the funds for a determined amount of time so they are prepared to make a sweeter offer, knowing they can change the rate at maturity.

At the moment, there are still comparatively high rates available on short-term offers, with some three-month term deposits paying more than 10 and 11 month terms.

It’s worth noting, however, that some economists expect one more rate cut from the Reserve Bank this year so investors might consider investing in a longer-term deposit in case rates fall further.

Another option might be to hedge your bets with a combination of short and long-term term deposits.

The recent announcements put job creation and business activity before savers but that doesn’t mean there are no options to beat the low-rate blues.

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