Australian households hold substantial amounts of cash, with a whopping $874 billion dollars deposited in the nation’s banks at the end of November 20171.
That’s equal to more than a third of the nation’s superannuation savings sitting idly in bank accounts. Given that enormous asset pool you might think Australians have developed a knack for managing their cash…but the opposite is true. Australians are sitting on mountains of lazy cash.
Where is this lazy cash?
Much of the cash that could be working hard for households is held in transaction accounts which, almost without exception, pay an interest rate of precisely zero percent. About $58 billon1 is held in this way.
Where is this lazy cash?
Much of the cash that could be working hard for households is held in transaction accounts which, almost without exception, pay an interest rate of precisely zero percent. About $58 billon1 is held in this way.
Obviously, there are a range of valid reasons to hold cash in a transaction account (they are generally used as a ‘float’ to fund bills and other spending), but our analysis shows clearly that the nation is over-using these non-interest-bearing accounts.
The average Australian household spends $1,4622 each week on goods and services and gets paid fortnightly (indicating they need just over $2,900 in their ‘float’) yet on average we hold $6,4333 in a transactional account not earning any interest.
There is no suggestion that households should be investing this excess cash in stock markets, or in illiquid investments, but there are better ways to eke a return out of this mountain of cash.
Source: NMG analysis of retail bank announcements to ASX and Australian Bureau of Statistics (ABS) data
Another place where cash is being held sub-optimally is in low-interest savings accounts. Often these accounts offer a high interest rate for a short initial term, but it then drops down to a significantly lower rate. The other commonly seen products offer a modestly higher rate as long as savers deposit a minimum amount per month and don’t make any withdrawals. People falling foul of either rule will find themselves earning an interest rate close to zero for the month.
On average, investors in these savings accounts earn in the region of 1%5 per annum (taking into account the proportion that have passed their high interest rate period, or taken the liberty to withdraw some of their own cash). Don’t get us wrong, 1% is a whole lot better than 0%, but it is far from optimal. And Australians invest at least $214 billion6 of cash in this way.
How can Australians do better?
Failure to actively manage their cash is estimated to cost Australian households around $2.3 billion7 per year in lost interest. In the current low rate environment, this is money that savers cannot afford to leave on the table. With the innovation that is occurring in cash investment options, Australian households would do well to examine where they can make their lazy cash work harder to ensure they are not missing out on the returns they deserve.
If you would like to make your funds work better for you, contact us today.
1 Australian Prudential Regulation Authority (APRA)
2 NMG analysis of retail bank announcements to Australian Stock Exchange (ASX) as well as APRA and Reserve Bank of Australia (RBA) data
3 NMG analysis of retail bank announcements to ASX and Australian Bureau of Statistics (ABS) data
4 NMG analysis of retail bank announcements to ASX and ABS data
5 NMG analysis of retail bank interest rates advertised
6 NMG analysis of retail bank announcements to ASX and APRA data
7 NMG analysis of retail bank announcements to ASX and advertised interest rates as well as ABS data
8 As at 31 December 2018
Disclaimer: This article is intended to provide general information only and has been prepared by DC ADVISORY GROUP (ABN 69 109 459 047) without taking into account any particular person’s objectives, financial situation or needs. Any opinions expressed in this material are those of DC ADVISORY GROUP, and are subject to change without notice. This material does not constitute an offer or recommendation to buy or sell any securities or financial products, or to conclude any legal act of any kind whatsoever. Neither DC ADVISORY GROUP nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material.
Source: NMG analysis of retail bank announcements to ASX and Australian Bureau of Statistics (ABS) data
Another place where cash is being held sub-optimally is in low-interest savings accounts. Often these accounts offer a high interest rate for a short initial term, but it then drops down to a significantly lower rate. The other commonly seen products offer a modestly higher rate as long as savers deposit a minimum amount per month and don’t make any withdrawals. People falling foul of either rule will find themselves earning an interest rate close to zero for the month.
On average, investors in these savings accounts earn in the region of 1%5 per annum (taking into account the proportion that have passed their high interest rate period, or taken the liberty to withdraw some of their own cash). Don’t get us wrong, 1% is a whole lot better than 0%, but it is far from optimal. And Australians invest at least $214 billion6 of cash in this way.
How can Australians do better?
Failure to actively manage their cash is estimated to cost Australian households around $2.3 billion7 per year in lost interest. In the current low rate environment, this is money that savers cannot afford to leave on the table. With the innovation that is occurring in cash investment options, Australian households would do well to examine where they can make their lazy cash work harder to ensure they are not missing out on the returns they deserve.
If you would like to make your funds work better for you, contact us today.
1 Australian Prudential Regulation Authority (APRA)
2 NMG analysis of retail bank announcements to Australian Stock Exchange (ASX) as well as APRA and Reserve Bank of Australia (RBA) data
3 NMG analysis of retail bank announcements to ASX and Australian Bureau of Statistics (ABS) data
4 NMG analysis of retail bank announcements to ASX and ABS data
5 NMG analysis of retail bank interest rates advertised
6 NMG analysis of retail bank announcements to ASX and APRA data
7 NMG analysis of retail bank announcements to ASX and advertised interest rates as well as ABS data
8 As at 31 December 2018
Disclaimer: This article is intended to provide general information only and has been prepared by DC ADVISORY GROUP (ABN 69 109 459 047) without taking into account any particular person’s objectives, financial situation or needs. Any opinions expressed in this material are those of DC ADVISORY GROUP, and are subject to change without notice. This material does not constitute an offer or recommendation to buy or sell any securities or financial products, or to conclude any legal act of any kind whatsoever. Neither DC ADVISORY GROUP nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material.
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