Could super be the better savings plan for you?
Over the last 12 months many households have seen their savings grow. If this was you, how would you invest those savings? Would you start a term deposit? Or think about investing it in shares? Contributing extra into super could also be a great way to grow your savings.
Here we explore why adding extra to your super may generate a better long-term performance return. So, you can have a more comfortable retirement.
Aussies are saving more than ever
The impact of COVID-19 is far reaching. While many parts of Australia were in lock down there was a significant decrease in spend across travel, entertainment and dining out. So, savings have increased for many. In fact, savings went up 20% in June 2020 (up from 6% in March 2020). 1 According to a recent study, COVID-19 has been the reason for increased financial savviness. 55% of people are now being more proactive about financial planning. 2
If you’re considering where to invest your savings there are many options, including
- Bank accounts such as savings, term deposits or mortgage offsets
- Direct investments such as shares
- Your super
Many Australians are taught to save for a future goal by keeping spare money in the bank. If you’re saving for a short-term goal such as a wedding or holiday this can be a good option because there’s usually flexibility to withdraw at any time. But if you’re thinking about your long-term goals, such as a comfortable retirement, the interest you earn or save on these accounts may not provide as much benefit.
The interest you receive from money in these accounts has a snowball effect on your savings, known as compounding. Each time interest is earned it is then reinvested. This means you’ll earn interest on your interest over time. It works the same for super.
But bank interest rates have been falling since the 1980s (when they were as high as around 15%). And over the last decade the interest rate has decreased further. In 2012, some banks had a standard rate of around 5% but as of January 2021 the highest interest rate is just over 1% with many banks under this figure. 1
Investing in the share market, especially over the long term may generate a solid performance return. But did you know you might already be investing in shares? This is because many investment options in super have shares as part of their portfolio.
For example, our MySuper Balanced (default) option includes 26% Australian Shares and 30% International Shares. This means that if you’re in this option, more than half your super is invested in shares already!
And the best part is that your super is invested by expert investment managers to help it grow. This means you don’t have to think about what shares to buy, or when to sell, as they’ll do all the hard work for you. And, you’ll generally pay less tax on investment earnings inside super compared with the marginal tax rate you pay on income outside of super.
If you want to take a more hands-on approach to investing, there are 11 different investment options to choose from, Including multiple Australian Shares and International Shares options You can put all your super in one of these options, or spread it across different options. Learn more about each option, including the asset allocation, level of risk and long term performance here.
Or speak to one of our experienced financial advisers about your individual needs, they’ll help you work out which option is right for you.
Why super is a good investment
Every year your super delivers a performance return. Super’s objective is to generate long-term performance returns (since it’s invested over your entire working life). Although it can experience market ups and downs, generally over the long-term it produces reliable growth.
Consider the performance returns of our MySuper Balanced option from 10- and 5-years vs the interest on an average term deposit rate where money was held for at least 12 months.
|10 year (july 2010)||5 year (july 2015)||Tax on earnings|
|MySuper Balanced (default)||7.14%||5.20%||15%|
|Average term deposit rate on offer 3||6.00%||2.40%||Your marginal rate up to 45%|
Like interest-earning bank accounts, super benefits from compound interest. Compounding can grow your super even more than the regular contributions from your employer over time, so even if you contribute small amounts like $10 a week, it can make a huge difference in the long run.
How to contribute
There are three main ways to build your super. Click on the link below to find out how each work and how to contribute.
- Salary sacrifice
- Personal contributions
- Government co-contributions
Remember, you can only withdraw money from super when you meet a condition of release. For example, reaching your preservation age or retiring. So, if you need the money in the next few years then consider one of the alternative savings or investment options outside of super. But if you have spare cash and you’re looking to save for the long term and a more comfortable retirement, consider contributing extra to super.
1 ABS, household saving ratio, June quarter 2020
2 Kantar COVID 19 Barometer, Wave 8, 14-18th August, n=500 Australians 18+
3 Historical term deposit interest rates: What was the average?, Finder, 5 Oct 2020, viewed 19 January 2021