Alison Cheung* looks at new products banks are offering that can make saving and debt reduction relatively painless.
Spending our days in lockdown has meant we are inadvertently spending less overall, but that hasn’t made it easier for everyone to pay off their debts and build their savings.
Since COVID-19 hit, one in five Australians can’t make their minimum monthly credit card payments, while 11 per cent of borrowers can’t make personal loan repayments, according to consumer insight company, J.D. Power.
Another 11 per cent are in the same situation with their mortgages, though the related mortgage freezes may be of some relief.
Even before the pandemic, nearly 30 per cent of Aussies said they lived from pay cheque to pay cheque and found it difficult to save money, according to ING research.
At the end of the day, saving money for long-term goals, including becoming debt-free, can be tough.
Fortunately, technology has made it easier for us to take control of our spending and saving habits.
A relatively new innovation to come out of fintech is automatic round-up bank accounts.
Much the same as regular bank accounts, the only difference is round-up accounts have an extra feature to round up your everyday expenses to the nearest dollar or, in some cases if you’re feeling ambitious, the nearest $5.
Automatic round-up bank accounts are somewhat similar to the $5 saving hack which was popular several years ago.
It involved people putting away a $5 note every time they received it as change in a shop.
At the end of each month, they would then deposit what they had accumulated in their savings account.
The difference is that these round-up bank accounts are digital, meaning you can set and forget your round-ups as it grows on its own.
Note that these special accounts may charge fees, which could eat into your hard-earned savings.
Make sure the charges are worth it in the long run before signing up.
You might also need to keep an eye on your transaction account balance.
If your available funds fall close to zero and your purchases are still being rounded up, you might be charged a dishonour fee.
However, many banks have a minimum balance threshold before they start rounding up your expenses.
Apart from savings, the automatic round-up idea has also been used to pay off debts directly and for micro-investing, where your spare change would be invested in the share market.
Let’s say you buy a coffee for $3.50, that would automatically be rounded up to $4, putting 50c into your savings account.
Or if you’ve chosen to round it up to the nearest $5, it would charge you $5, with the remaining $1.5 sent straight to your account.
This might make more sense if you were making bigger purchases.
While an extra 50c on its own might sound like peanuts, the spare change here and there adds up over time as you go about your daily shopping.
It’s not just what you buy in-store. In most cases, these bank accounts will also round up your online shopping and your regular bills.
You could contribute the accumulated round-ups to bring down your debt or if you don’t owe any money, simply watch your savings grow.
So, if the days until your next pay cheque always feels like an eternity in poverty and you’d like to become more financially disciplined without axing your budget, automatic round-up bank accounts could be your answer.
The automatic round-up feature is fairly new to the personal finance world, so it’s not widely available in Australia yet.
However, there have been a handful of early adopters in the market. Some of the banks that have this feature include ING, Bank Australia and Beyond Bank.
*Alison Cheung writes about personal finance and fintech. She can be contacted at RateCity.com.au.
This article first appeared on the Lifehacker website.