In its Financial Wellbeing Index, ING DIRECT found that for more than a quarter of respondents, “saving for a goal” was the most enjoyable way to spend money, ahead of special treats and repaying debt.
ING DIRECT treasurer Michael Witts said with the full effects of recent interest rate cuts now making their way through the market, investors are become more conscious of returns.
“The way interest rates are adjusted, there is a six- to nine-month lag before they become truly effective so we’re actually seeing those interest rate-sensitive components of the index actually responding positively to that,” Mr Witts said.
“When we come down to the savings part or the investment part, not unsurprisingly, with lower interest rates, investors are saying, ‘hold on, I’m not getting as much return’.”
As a result of rising costs and fewer returns, Mr Witt said consumers are becoming more reluctant to spend.
To mitigate some of this income pressure, he said, investors are taking out longer term deposits to get the benefit of the positive yield curve.
“Potentially, if you’re a self-funded retiree who has a term deposit, what you’d find is your income is getting lower and it’s also matched with higher household bills, so their disposable income is reduced,” Mr Witt said.
“Coming back to the saving impact, trying to minimise the effect on savings, in our term deposit book what we’ve seen is investors are investing longer.”
“Whereas previously they were investing for three months…now we’re seeing six to nine to two months, so with that positive eyelid curve, they’re getting a higher interest rate and that’s how they’re trying to mitigate some of this income effect.”
Mr Witt said that while “on balance” the Reserve Bank (RBA) could leave rates unchanged next week when it announces its cash rate decision, “it appears fairly likely that the RBA will in fact cut rates next week”.
“That will put further impetus into the economy, but I think the RBA is looking more at interest rates affecting the exchange rate than actually putting more growth into the domestic economy,” he said.
