David Loses Money Tracking my adventures in making money without earning it

Savings

S

Ugh, savings. It’s when you get money, then do nothing with it. If you let it sit in a bank account it might earn interest, but odds are the interest being paid is less than the rate of inflation, so you’re losing money by having it sit there doing nothing.

This is sort of by design. Interest being lower than inflation means it then it encourages you to – you know – do something with it, which gets that money moving throughout the economy and blah blah things happen. If money isn’t moving from place to place in an economy then everything seizes up and it all falls apart.

Interest Rates

The RBA aim to keep the rate of inflation between 2% and 3% a year, and they do this by setting the “cash rate” for banks. This is the amount of interest charged on loans between banks when they borrow money from each other overnight. At the time of writing it is 0.15%. This cost eventually gets passed on to consumers, and ends up dictating how much interest they earn on savings (or on the flipside – how much they owe in loan repayments). Beyond that I can’t explain the exact mechanisms of overnight settlements as despite reading over it a few times they go over my head, but the RBA site has a few explainers that might help.

So, the inflation goal is 2-3%. This is the rate that money declines in value over time – it isn’t really a good thing or a bad thing, it’s just one of those things that happens but if it gets too out of control then daily life gets really unstable and unpredictable. Zimbabwe over the past few decades is a good example – it got to 79,600,000,000% per month in 2008 before they stopped reporting on it. If inflation doesn’t really happen, it’s kind of a sign that there isn’t a whole lot of economic activity going on.

So, how have the RBA been going with their remit of keeping inflation between 2-3% annually?

YearRateSuccess?
20102.92%✔️
20113.30%
20121.76%
20132.45%✔️
20142.49%✔️
20151.51%
20161.28%
20171.95%
20181.91%
20191.61%
20200.85%
Yoinked from MacroTrends

Pretty shithouse. Looks like they’ve consistently failed since 2015. Their predictions for the next few years are “yeah it’ll totally be 2.25%” but that’s been their predictions for the past few years too, so I don’t know why we keep believing these numbers.

How do you get inflation to rise? You give people more money, which theoretically increases demand, causing the price of supply to go up. Unfortunately, wage growth in Australia is extremely stagnant (why do we accept this?), so that’s out. Another way to spur inflation is to make debt cheap by reducing interest rates. This gives people access to more money, which will hopefully increase demand and cause inflation. The problem is that if you combine making debt super cheap with incentivising people to invest in unproductive assets (ie. housing) via preferential tax treatment just means that all that cheap money kinda just ends up inflating a single asset class and doesn’t solve inflation, instead creating a new problem (that politically, nobody wants to solve).

So in a nutshell, super low interest rates are generally a sign that an economy is pretty unhealthy and falling apart, and they’re an attempt to try and kick-start things. The fact that the Liberals always claim “interest rates are always lower under a Liberal government” is ironically an admission that they’re shithouse economic managers (and they absolutely are by virtually any measure) yet somehow gets spun as a positive.

Back To The Point

Whoops, I went off on a tangent. I was planning on writing about my experiences with savings accounts. Unfortunately they’re really not that interesting, but:

ING

I suppose ING are the most recognisable in terms of savings accounts, as they were the first (from memory) of the high-interest-savings-account product, Barefoot recommended them, and they’ve been coasting on that ever since. I used to be with them ages ago and back in the day it was pretty great – I think around 5% interest and their internet banking stuff was excellent. Then PayWave came along, and they used to give 1% cashback on all PayWave transactions.

…then things started to suck. Interest rates kept dropping (as they did everywhere), making the product less attractive. The PayWave cashback went away and became “must have Orange Everyday account as well” plus “do 5 PayWave transactions a month to get interest” (I use points cards so this was annoying), then it additionally became “the balance must be higher than it was last month.” The number of hoops to jump through just to get an extra piddly few dollars of interest got too annoying and I jumped ship…

UBank

…over to UBank. They had the same interest rate and none of the loopholes, except their internet banking product is one of the worst things I’ve ever had to use. Far out what a mess, it’s like they took every good UI idea in the world and did the opposite. The way UBank works is there’s a savings account and an everyday account, and they have a “sweep” feature which would transfer money back and forth each day so that the everyday account would always have a set balance (minimum $100). If you set direct debits against the everyday account then money would automatically transfer across from the savings account in order to pay them when needed. But if you used the debit card then money didn’t auto-transfer. I dunno, it was a weird system. So the UI was atrocious but on-the-whole it worked… except when NPP came around (so you can do realtime payments via PayID or Osko) they kept saying they’d be implementing it “soon”… for years. Their inability to add a core feature that everywhere else had had for ages led to me leaving for…

86 400

86 400. A stupid name (it’s the number of seconds in a day) but a decent bank otherwise. This is my current bank and the only complaint I have is there’s no internet banking – it’s all done via phone app. Most of the time this is fine but can be annoying when you’re trying to tap in BPAY reference numbers and things like that. But they have no hoops to jump through, support NPP, and you can do direct debits/credits against the savings account. This is super handy. Other perks are no currency conversion or ATM fees if you’re getting cash out overseas. They got bought out by NAB (who also own UBank) a few months ago so I assume they’ll probably get worse over time, but at the moment I’ve been happy with them. Their interest rate is slightly lower than ING (1.2% vs 1.35%), but for me the lack of hoops to jump through makes up for it.

In Summary

So that’s been my journey in the land of earning interest on savings. I treat my savings as kind of like… I buy everything on points credit cards but have them set to direct debit the full amount from my savings account each month, so instead of paying interest on anything I’m getting interest on the money sitting there in savings before it gets debited. I use YNAB to ensure I’m not spending money I don’t have. This system has worked for me for several years now – at first I thought there was a catch somewhere because I didn’t appear to be getting screwed over in any unexpected way, but it seems all good.

One more thing I should mention – if you’re shopping around for savings accounts, this Google Sheet maintained by people on Whirlpool is enormously useful. It has a list of all the major HISAs in Australia along with the current interest rates that they pay, and any hoops that you have to jump through in order to get them. It’s an excellent starting point in the hunt for getting better value out of banks.

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David Loses Money Tracking my adventures in making money without earning it

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