Advantages of low interest rates and how you can save

11 March 2016
Pity anyone who has to live on interest from bank savings.  Interest rates have been stagnant for a long time.

It’s not a nice scenario. You’ve saved up $100,000 or so over a lifetime of hard work. In the middle of 2008 the official cash rate was 7.25% and your nest egg would have earned $8,000 or so in interest a year on a typical six month term deposit. These days you’ll bee doing well to earn $3,000 a year on average on the same life savings.

That $5,000 fall in earnings can mean the difference between just surviving and having a few treats.

If you need to earn more than 3% on your savings in order to survive financially, you will need to be smart. Here are some ideas to get you started:

Think about growth assets

Chances are that you plan to live more than 10 years from the age of 65. If so, you might consider taking advice and investing a portion of any savings you have in higher return investments such as shares or managed funds. Do take into account the added risk of shares or commercial property over term deposits. Some people just can’t stomach the risk and you don’t want to spend your retirement unable to sleep in fear of the markets crashing.

Don’t forget about customer-owned institutions

Australia has a wide array of customer-owned insitutitons, so don’t forget to think outside the Big 4 when it comes to a return on your money.

Ladder your term deposits

Laddering involves splitting your term deposit maturity rates to take advantage of the highest interest rates, but always have a portion of the money about to mature. Divvy up your money and deposit a portion of it each year into a five year rate until all your money is invested for that period of time, but maturities come up every year. It doesn’t have to be five year terms. It could be shorter periods such as three months if you prefer. That way you can take advantage of any great term deposit promotions that are available.

Consider peer-to-peer lending

The idea of peer-to-peer is that you cut out the middleman by lending direct to borrowers via an online platform such as Ratesetter, Society One,  Harmoney and others. Instead of the bank taking the profit between the 19.95% it lends on credit cards and the 3.85% it pays you, you get the return less a fee. But please don’t put too much money into one single platform. There have already been articles about platforms churning loans to double their fees at the expense of investors. The old adage “too good to be true” must not be ignored when looking at the juicy rates on offer from these lenders. Peer-to-peer lending is a new form of investment and isn’t proven.

Be a rate tart

What this means is shop around and don’t give your affections to one single bank or financial institution. Spreading your bets reduces the risk of having all your eggs in one basket. Spread your money across a wide range of investments and institutions.  It reduces the risk of losing some of your money in a company or niche-wide collapse.


Retirement is a time to kick back. But some people work a little and enjoy themselves a little. Or you could work full time for a few more years to build up a bigger nest egg. If you’re lucky, interest rates will increase in the meantime. What’s more, once you’ve reached retirement age you can potentially use a Transition to Retirement strategy to reduce your tax.

Or if you want to, just look for part time work that isn’t too taxing. That could range from consulting in your former industry to working on the counter of your local florist. Some retirees simply sell a skill they have such as house cleaning or computer repair. You could just babysit in the evenings. It’s great if the children are in bed. You get paid to sit watching someone else’s TV.

Get a personality transplant

By that we mean learn to spend less and value things in life that don’t cost money. Being grateful for what you have can make your life a whole lot happier than having a few extra bucks each week. Find yourself a good money saving blog or forum to follow and make a game of finding satisfying ways to make your money go further. Also consider the viability of downsizing your house or renting out rooms to boarders, or tourists.

Rent your home out and travel

For the adventurous, it may be cheaper to live overseas on the proceeds of the rent from your home. You can live relatively well for a few dollars a day in countries such as Cambodia, Vietnam and India. You might even be able to earn money teaching English along the way, or volunteer to get free accommodation and food. This isn’t a strategy, though, for the faint-hearted!

Move in with family…?

This is what we all did in centuries gone by. Extended families all lived together. If you can move in with your children or siblings or other relatives and pay them rent/board, you’ll all be better off financially. But please be very wary of financial elder abuse.

Finally, whatever you do, don’t take too many risks with your money. As the oft cited mantra goes: “The return of your capital is more important than the return on your capital.”

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