We’ve all seen the headlines: Australia is now facing its first recession in nearly 30 years. The numbers support the claim.
Australian Bureau of Statistics data released this week shows the nation’s economy contracted by 7% in the June quarter, the sharpest quarterly fall in the Gross Domestic Product (GDP) on record.
It follows another GDP drop of 0.3% in the March quarter. This means the country has now recorded two consecutive quarters of negative growth - the technical definition of a recession, which Australia hasn’t experienced since 1991.
Treasurer Josh Frydenberg said these numbers “confirm the devastating impacts on the Australian economy from COVID-19.”
Many people are out of work, while others have seen their pay cheques cut. Spending is down too, with a number of recent surveys revealing most Australians are pulling the reins in on discretionary purchases and focusing on savings instead. So, what’s next?
Savings mode during slower times
Mozo’s banking expert, Peter Marshall says the ABS announcement may only intensify the thrifty mindset we’ve adopted over the past few months.
“It’s a bit of a self-perpetuating cycle. Consumer confidence being undermined means people are adjusting their behaviours and being much more financially conservative, and that means it’s hard for the economy to get going again,” he says.
The road to economic recovery, Marshall said, will be “very, very slow”.
“Until people start to feel like there are some improvements coming through in the foreseeable future, they’re going to keep saving as much money as they can and avoid borrowing anything unless they really need to,” he said.
“As well as the practical impacts of the pandemic, there’s been a crisis in confidence and it’s going to take some time to get over that.”
Which banking products are useful during a recession?
So with the future unclear and no guarantee things will get better soon, what banking products could help in the meantime with saving up, paying off debt and improving personal cashflow?
Here are a few to consider:
High interest savings account
With a growing number of Aussies now dedicating more income to saving than spending, it pays to choose the right parking spot for that money.
While banks have tried to cut their losses by repeatedly slashing savings rates, there are still some good offers in the market. Namely, with a high interest savings account you could be looking at ongoing maximum rates as decent as 1.65% (with MyState Bank Bonus Saver Account, Volt Savings Account, and ING Savings Maximiser).
Just bear in mind that with many high interest accounts, there are often monthly conditions attached (like no withdrawals, or a minimum deposit or number of card transactions). So make sure you can realistically meet their requirements before moving your savings stash there.
Where to next? Compare options over at our high interest savings accounts page.
Refinance home loan
If you’ve got a mortgage under your name and have the financial capacity to refinance right now, this is a great way to give yourself an instant pay raise.
For one, home loan rates are at a record low and have only grown more competitive throughout 2020. Mozo data reveals that in just six months (March to September), the average variable home loan rate has dropped down from 3.68% to 3.36% - a 32 basis point difference.
For a $700,000 home loan over 25 years, that difference could mean shaving $125 off your mortgage repayments per month, and saving $45,073 in interest over the life of the loan.
What’s also worth noting is an emerging trend of providers trying to attract refinancers by offering their best rates to borrowers with loan to value ratios (LVRs) below 80%, 70% and 60%.
So, if you’ve been paying down your mortgage for years and now have a larger equity in your home, you could have access to even more killer rates.
Where to next? Scroll down below to compare offers, or head over to our refinance home loans page for more deals.
Compare refinance home loans - last updated December 05, 2020
Smart Booster Home Loan
Celebrate Variable Home Loan
- Virgin MoneyVirgin Money
Special Offer Reward Me Fixed Rate Home Loan
Basic Home Loan
No interest personal loan
For Aussies who are short on cash and need a little extra to cover the cost of essentials, a no interest personal loan could help.
As the name suggests, this type of loan charges no interest at all. It’s offered by GoodShepherd Microfinance (in partnership with NAB and the Australian government), via two initiatives:
- No Interest Loan Scheme (NILS): Aussies can borrow up to $1,500 over 12 to 18 months to pay for necessities like medical procedures, car repairs, education and household item purchases.
- Household Relief Loans Without Interest: Aussies can borrow up to $3,000 for rent and utilities, to be repaid over 24 months.
There are no catches in terms of fees, charges or credit score checks, but you will need to meet an eligibility criteria for both.
Where to next? For more information on how to apply, check out the NILS and Household Relief websites.
Balance transfer credit card
A staggering 78% of Australians are worried about how they’ll repay debt, according to recent Mozo research. If you’re one such Aussie and have credit card debt hanging over your head, it may be time to consider a balance transfer.
With a balance transfer, you can move your existing debt to a new credit card offering 0% interest over a fixed period (say, 9-22 months). Essentially, this gives you more time to clear your debts without drowning in further interest charges.
Just be sure to pay off your balance before the BT period ends, as the card will then revert to a higher rate.
Where to next? Compare 0% interest deals over at our balance transfer credit cards page.
Financial assistance options
Remember that if you’re struggling, there’s absolutely no shame in seeking help from your bank or ringing up a free financial counselling service to figure out your next steps.
Our page on COVID-19 and your finances also lists a range of resources and relief options that could provide some breathing space as you navigate these tough times.
^See information about the Mozo Experts Choice Home Loans Awards
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