How to leverage your savings in a recession

Fact Checked
Updated 08/08/2023
How to leverage your savings in a recession

More than one in three Australian's say they have a budget – question is, how many of us stick to it?

Time to read : 3 Minutes

How To Leverage Your Savings In A Recession

With mortgage rates on the rise (and the cost of everything else following suit), it’s time to focus on using your savings to your absolute advantage. 

Standard cash rates are currently sitting at around 4.5% - 7.5% (October, 2022), which means that moving any extra money to a mortgage offset account will save you more in interest payments than in interest earned from a regular savings account, for example. 

Here’s how to grow your nest egg and use it to offset the inflationary price of your home..and groceries…and energy bill.

🧠 Getting smarter about where you keep your money and how you repay your mortgage can save you thousands of dollars each year — especially with skyrocketing interest rates. 

🪜It’s still possible to grow your savings — even in a recession — with some small but powerful habits. 

🗓️ Creating clear and detailed savings goals can help you achieve financial freedom faster. 

Why it’s important to have savings goals

We all technically have financial or money goals, don’t we?

📈 For some, this includes detailed saving and investment targets, and for others, our objective doesn’t progress beyond the stated desire to “have more money” (still a goal, albeit not a very good one). 

  1. We’re all encouraged to have some form of emergency fund because, at the end of the day, none of us knows what the future may hold. These savings can be used to offset increased interest rates, for example, or to cover the cost of car repairs, job loss and planned medical procedures.

  2. According to a recent report, the average Aussie has $28,409 in savings — a figure similar to the $22,020 quoted by Westpac for the same period. That said, the banking giant admits that this figure is skewed by its large deposit holders. The more realistic figure, they say, is $3,559 for average account holders. 

  3. It’s not a lot for most middle income Aussies, but it’s a start and definitely something that can be optimised when leveraged in the right ways. 

How to use your existing savings to offset rising costs

🔝High interest savings account

  • Interest rates for savings accounts tend to follow the cash rate pretty closely, which means that as interest rates on mortgages go up, so too does the potential for you to earn better returns on your deposits.

  • There are now some very competitive ongoing rates (and even higher introductory and honeymoon offers) for those willing to invest larger amounts (usually $10,000 and above) into high interest accounts.   

  • A Bank of Queensland Future Savers account, for example, lets you earn up to $34.17 in monthly interest (including bonus and promotional conditions) based on a $10,000 balance.  

🏆 Use your mortgage offset account 

  • A mortgage offset account is a transactional account linked to your mortgage. The money held in your mortgage offset account reduces your home loan balance and means that interest is only charged on whatever is left over after the offset amount is deducted. 

  • For example, if you have a mortgage of $350,000 with $50,000 sitting in your offset account, your interest will only be charged against the remaining $300,000, potentially saving you thousands each year

  • For this reason, many experts are currently advising households to move whatever savings they have into their offset account as the most effective way to combat rising interest rates. 

How to build your savings (even in an almost-recession)

✍️ Start a budget

  • It sounds basic as heck, but according to a study conducted by UBank, a massive 86% of Aussies don’t know what they’re spending each month

  • Start with your income and expenses (car, home and utilities) then add savings goals and create a plan for  monthly savings. Review your bank and credit card statements to gain clarity around what you spend and whether any of those monthly subscriptions can be nixed. 

  • This can be done on a simple spreadsheet or by using smart apps like Buddy, Raiz or even Spriggy for kids. 

☎️ Seek financial advice

  • Let’s face it, most of us come up lacking when it comes to financial literacy, which is why financial planners and budgeting experts can come in handy

  • Services Australia provides a free Financial Information Service, which offers education and support for those seeking advice.

  • The National Debt Helpline can also offer counselling, and a range of financial advisors can offer advice at a cost. 

🤓 Do your research 

  • Banks and insurance providers rarely reward loyalty as they should, which means you can feel guilt-free about shopping around to make sure you’re getting the best rate on things like your mortgage, savings account, utilities, insurance and credit cards. 

  • Look for things like fee and interest free periods, introductory offers and competitive rates, all of which could save you thousands each year. 

The bottom line

It’s hard to grow our savings when we’re all paying $10 for a head of broccoli and our mortgage repayments have doubled almost overnight.

🫰That said, there are ways to maximise your existing savings to offset this inflation, and grow your nest egg with some small but powerful daily habits.  

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.