The Melbourne Institute household financial conditions index rose 17.2 per cent to 33.7 in June, up from 28.8 in March.

“Credit card debt overtook mortgage debt as the main form of household debt in June, 36.6 per cent compared to 33.9 per cent. This is the first time since November 2006 that households nominate credit card, and not mortgage debt, as their main form of debt.” Melbourne Institute research fellow Dr Edda Claus said in a statement on Thursday.

51.5 per cent of respondents cited saving for a rainy day as the main reason for their savings, a figure which remains unchanged from the March quarter.

55.8 per cent of respondents cited saving for a holiday or travel as the main reason for their savings, up from 55.0 per cent during the March quarter.

Credit card debt became the main form of debt carried by Australian households, replacing mortgages, and the level of debt rose by 3 per cent to 36.6 per cent.

“About 48.8 per cent of Australian households saved part of their income in June 2010, up from 46.2 per cent in March,” the report said.

The survey results from the June quarter suggest that nearly 75 per cent of Australians own their home outright or hold a mortgage, a figure which declined from previous surveys.

More than 40 per cent of households said they were debt free, while a third said they held mortgage debt, down almost four per cent since last quarter.

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“We have proved to ourselves that we could turn the deposit switch on pretty rapidly through our branch network last year and we did that, but we weren’t prepared this year to compete in what I think is unsustainable competitive markets. Can we go back into that market? Yes, but you would need to remain competitive, and at the moment I think it is quite dysfunctional.” he said.

Mr. Liddy added that as a result of the government’s necessary response to the financial crisis a banking oligopoly had formed.

“The demise of two of the major regional banks and several significant non-bank lenders, and the funding pricing disadvantage placed on smaller industry players, has and will continue to place more power in the hands of four major banks,” Mr Liddy said.

“I continue to urge our government to look for solutions and regulatory measures that not only maintain and improve our world standing in financial services but provide real options in restoring a competitive banking landscape in our country.”

BoQ said its normalised cash net profit — its preferred measure of profitability, which strips out volatile items — had climbed 15 per cent in the six months to the end of February to $97.2m amid cost savings and higher net interest income.

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In Australia, fortunately the government so far has yet to raise tax rates, the top marginal tax rate is the same as it was last year however it is still at a hefty 45 per cent.

Australia is indeed one of the few countries that has not aggressively raised taxes, whilst at the same time has also begun tightening monetary policy, so interest rates are no longer at near half century lows.

If however you find yourself living in a place where like the UK for example, the top marginal tax rate has been raised to 50 per cent, whilst the bank rates are less than half a per cent, then clearly difficulties in obtaining returns on one’s savings does become a problem.

Those seeking returns are therefore being extremely inventive in sourcing methods to beat their savings problems, using offset mortgages, cash back credit cards, paying private school fee upfront.

Here is how it works

CASHBACK

Low bank interest rates are not the main problem in Australia, with the official cash rate at 4.25 per cent, and many lenders offering term deposit rates well in excess of that level. But for those who want easy access to their cash, and want to find a way of making some savings at the same time, then a cash back card is a good idea.

Many lenders seem to offer better rates for spending money using their credit cards, in some countries it is more profitable to spend on a credit card than using your savings.

The card issuer typically offers a cash back rate of something like 1 per cent, when you spend money using your credit cards with participating retailers.

The big advantage is cash back spending is tax free, so if you live in a place where the bank rates are puny, and a 1% cash back rate is competitive relative to the interest on your savings, then it makes sense to use the card to spend, not only do you earn cash back, but that is not taxable, unlike the cash sitting in your savings account.

OFFSET MORTGAGES

For those income earners who find themselves in the top tax bracket, holding a mortgage and a savings account, now would be a good time to enquire about the possibility of switching your mortgage over to an offset deal.

Offset mortgages work by simply offsetting the borrowers savings against their mortgage debt, with interest accruing on the remaining balance.

This means that the mortgage debt is paid off far earlier than otherwise would be, with the interest only accruing on the remaining balance, which is far less than the tax payable on the same amount.

The best thing about offset mortgages is the fact that cash balances can be accessed whenever you have the need to dip into them.

Ann offset mortgage allows the borrower to earn tax free interest on their savings at the same level as the mortgage, and is very useful for top rate taxpayers, who have a decent amount of savings.

PAY SCHOOL FEES UPFRONT

If you are sending your children to private school, then one way to save cash and reduce tax is pay the fees upfront. What the school will tend to do is place the money in a separate account, which is supposed to protect you from any closure or bankruptcy.

The school places the money in a deposit and returns the interest earned from the deposit in the form of discounts. Most schools have charitable status, so their interest income is tax free, which has the effect of the discounts often being far better than the interest received were the money held in a taxable savings account.

Bursars report increased interest in paying fees in advance, thereby netting a higher effective return than on cash deposits. Your money tends to be kept separate from a school’s financial affairs, so it should be protected if it closes or gets into difficulties.

When you pay upfront, the school puts the money on deposit and passes back the interest earned in the form of discounts. Schools earn interest tax-free thanks to their charitable status, which means the discount is often far better than the interest you would receive on a taxed savings account.

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The policy is as a result of the successful implementation of a pilot project last year in branches located along the eastern seaboard, which saw the introduction of retirement bankers in over 220 branches.

The specialists are available to offer free advice and tailored banking products for people planning or already in retirement.

Louis Hawke, ANZ’s managing director for retail distribution, said that less people were retiring in the traditional manner.

“Today’s retirees have different priorities, such as further education, travel, caring for grandchildren, starting businesses or working part-time,” Mr. Hawke said.

Mr. Hawke said, with an average retirement age 59 and the average life expectancy reaching 81, the average person has 20 years of retirement to fund.

ANZ believes that retirement is much more than just superannuation, and that many people had to change the way they bank in order to prepare for it or to draw from their savings.

The introduction of the policy of having dedicated retirement bankers comes after research by the lender on people older than 50 showing a majority of account holders had not reviewed their status since their accounts were first opened.

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Deposits have flowed in the coffers of the Big Four lenders, which in comparison to their smaller regional rivals, credit unions and building societies, offer lower interest rates.

Despite Prime Minister Kevin Rudd pledge not to let any financial institution, large or small fail, Australians still feel safer holding their money in accounts with a Big Four lender, which allows the Big Four banking groups to pay less in interest than smaller lenders pay.

Had Australians chosen deposit their savings with small regional lenders instead, savers would have collectively earned at least $3.6 billion more in interest over the last year, according to a research report commissioned by the Daily Telegraph and conducted by research firm Core Data.

Retail deposits held with the Big Four banking groups amounted to a record $356 billion, representing an 18 per cent increase in the same month last year, or a staggering $54 billion rise in deposits held with the Big Four.

The huge increase in deposits held with the Big Four banking groups came as a result of a flight to quality by depositors, caused by a global financial crisis, which prompted depositors to seek out banks which they perceived as being the safest, rather than those which offered the highest returns for their deposits.

In actual fact, the Federal Government guarantee of all deposits held by banks, building societies and credit unions, means that deposits held with smaller financial institutions are just as safe as those held at the Big Four.

High interest bearing internet accounts at the Big Four, under perform those offered by many smaller rivals by as much as 1 per cent, which according to Core Data, means that Australian depositors are losing out on as much a $10 million a day or $3.6 billion a year in interest.

The highest paying at call internet accounts offered by the Big Four banks, pay just 3 per cent in annual interest once introductory offers and conditions are stripped out. Smaller regional lenders, building societies, credit unions and even foreign banks who were also covered by the deposit guarantee, pay 4 per cent or more in annual interest, with no conditions attached.

This means for an individual who has $10,000 in savings, depositing that money with a Big Four bank means they would be forgoing an average of $100 a year in interest alone, or one third of the total interest paid by a Big Four bank, this despite the fact that there is no difference in risk.

This means that on $10,000 in savings, Big Four customers are giving up an average $100 a year in interest alone, or one-third of the total return made on online accounts at the major banks, despite no difference in risk.

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After the Federal Government implemented its guarantee on all Australian bank deposits in response to panic in financial markets last October, around $8 billion of financing to SME’s was cut as panicked investors moved funds into guaranteed products from non guaranteed investments including those of mortgage funds.

There is little doubt that the effect of the guarantee had on the Australian banking and investment landscape was one of large scale distortions. New deposits into non guaranteed products ceased resulting in the halting of new lending and fund managers freezing capital redemptions in a bid to cease the haemorrhaging.

Now that credit markets seem to have stabilized along with the global banking system, the industry is calling for the government to give the industry a boost by managing a staged lifting of the guarantee ahead of its three year expiry date.

Mortgage income funds have been instrumental in providing financing to small business, with many investors finding the high interest rates offered and the ability to withdraw without notice extremely appealing.

Chairman of the Investment and Financial Services Association David Deverall said that the larger mortgage income funds were able to offer redemptions to about 25 per cent of those who requested it, but only over the course of a quarter.

An alternative to freezing of funds being mooted is for investors to convert their funds, which were previously available at call into term deposits with defined or fixed terms.

“If we can do this, it will help existing investors and borrowers,” Balmain Funds chief executive John Thomas said.

Mr. Thomas believes that re-opening fund products to new investors would allow existing investors to exit or redeem capital that is currently frozen.

“It will allow existing investors who are content with the income stream to stay where they are, while others would have access to their capital over time.”

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Superannuation minister Nick Sherry wants the Federal Government to review and scrutinise fees and commissions generated by financial planners and brokers when they advise their clients on superannuation investment strategies and products.

The Government hopes to examine the structure, operation and efficiency of the sector. Mr. Sherry in an interview with ABC said that the fees and commissions structure is a concern for many people.

“Why aren’t the fees coming down, why don’t we have lower fees in a compulsory system? We know from international experience that as a system grows and we have got one of the largest systems in the world – fees come down. It hasn’t happened in Australia.” Mr. Sherry said

Mr. Sherry made the point that the fees and commissions charged by superannuation products had implications on the amount of funding available to people when they reach retirement age.

“The important thing about fees is that if you have a 5 per cent long-term rate of return after you have 1 of 2 per cent fees, those fees reduce your retirement savings very significantly by the time you get to your 60s,” he said.

The Combined Pensioners and Superannuants Association has welcomed the Federal Government’s plans for greater scrutiny of superannuation fees and commissions.

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Though BankWest has said the base rate for its eSaver account will move in tandem with Reserve Bank monetary policy, it has remained non committal on the spread it pays on its “smart rate” which is currently 1.5 per cent.

BankWest already offers one of the most popular high interest online savings accounts known as Telenet Saver. That account which pays an introductory first year interest rate of 4.25 per cent and a base rate of 3.45 per cent allows for an unlimited number of transactions and “serves a different function” according to BankWest head of retail deposits Paul Vivian .

BankWest through the new account is targeting depositors, with maturing term deposits. Depositors that invested in a term deposit a year ago would have locked in an interest rate of eight per cent or higher, which compared with today’s official cash rate looks is spectacular. Thos deposits which are maturing are faced with interest rates which are half that or even less if they roll over.

Top rates on term deposits are up to 4.5 per cent for three month terms and around four per cent for six and 12 month terms.

The eSaver account has no account maintenance or access fees. The customer must have a linked transaction account for transfers.

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At time of publishing the interest rate that SmartyPig accounts pay is an extremely competitive 4.5 per cent which is paid once a quarter with no fees. The idea behind the account is relatively simple. Individuals set savings goals with a specific purchase decision in mind, which can be as little as $500 for a Blue Ray DVD player, or $5000 for a holiday to Bali.

The savings decision is purely up to the individual with the minimum amount being $250. Once the information is supplied to SmartyPig, it will then calculate the exact amount the individual needs to save each month to reach their goal and deduct the amount automatically from the individual’s current account, with the individual being able to track their own progress.

The most unique feature of SmartyPig is its web 2.0 compatibility. Individuals can make their savings goals public through social networking sites such as Facebook and MySpace, and if family or friends want to contribute to the goal, they can either do so through SmartyPig or through the social networking sites themselves.

SmartyPig also allows savings to be converted in gift certificates of leading retailers such as David Jones, Virgin Blue Holidays and Bunnings. Savings converted into gift certificates get a value boost of anywhere between 4 to 8 per cent.

SmartyPig is an attractive way to start teaching children the value of savings. To open an account one needs to be over 16, but parents wanting to teach their children how to save can open an account in their own name.

Co-founder Jon Gaskell said the technology would improve the spending habits of young Australians, who have a “buy now, pay later” attitude. “Because of the viral and social nature of it we see kids getting involved,” he said.

“We need to rethink how we use credit cards. We need to be socially responsible with finances more than ever. Generation Y are plugged in 24/7. It is the new nuclear family, and we want you to take up saving before you buy into the social space.”

SmartyPig’s deposits are managed by ANZ but customers of any other bank can sign up.

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