Anxious Australians have been saving billions of dollars in an attempt to prepare themselves for a potential recession. $30 billion in cash was deposited into
savings accounts over the last six months - a trend that banks are encouraging as they seek to repair the damage caused by the global financial crisis.
Washington's $US700 billion ($895billion) rescue package, which was approved last week, will provide credit markets with liquidity, aiding banks to raise crucial funds.
Meanwhile, it is still in the banks best interest to pay customers annual interest rates of 8 - the highest rate in 13 years, than to raise money on markets that carry double digit rates depending on the size of the respective institution.
The race to make investments in cash links with the loss of confidence in global stock markets and crushed property markets, with normal investors and superannuation funds moving billions of dollars into cash holdings since the beginning of the year.
September's Westpac-Melbourne Institute survey of consumer sentiment showed that almost 30% of households see
savings accounts deposits as the wisest place to store their hard earned cash, the highest figure recorded in over fifteen years.
The survey also revealed that the $300 billion currently saved by Australians in bank
savings accounts is up from $270 billion in February.
Superannuation funds also make up another $143 billion in investments, up from $110 billion recorded at the beginning of this year.
However, some Aussies are selling their shares in panic and switching to cash investments. According to some leading financial advisers this move could potentially be a very bad idea, as they may be left behind when the recovery comes.
Financial planner Noel Whittaker - director of securities dealer Whittaker Macnaught, urges investors not to take any drastic actions.
"Stick with your long-term financial plan, everything moves in cycles and this too shall pass. It always does.''
“Now is not the time to panic or change your financial course.”
Mr Whittaker said that the majority of people make investments with retirement in mind and if that long-term retirement plan is on track, there is no need to make any substantial changes.
Always pay Bills before deadlines, as loans will be harder to get in future, especially for those without a faultless credit history who have had bad experiences with
credit cards, he said.
Mr Whittaker suggests that if anyone is lucky enough to have some cash to spare, they should take advantage of what is now an undervalued market.
