Retirement Savings Account (RSA) in Australia is not new and is becoming rare.
Most Australians choose a superannuation or super funds. Still, despite being limited, RSAs are available and worth considering.
Here, Aged Care Weekly explains what RSA is and how you can benefit from it.
What is RSA in Australia?
First off, a Retirement Savings Account (RSA) is an account offered by an Australian bank, credit union, or other financial institutions that are RSA providers.
RSA is capital guaranteed. Its interests and contributions to the account are reduced only by charges and fees. It is portable. The balance is transferable to a super or another RSA.
What to look for in a retirement savings account?
As with any other savings accounts or product, expert advice would be to consider benefits when looking for an RSA provider. Here’s a brief list:
- Competitive interests
Your RSA works harder if with a high-interest rate, especially if compounded daily.
- No fees
Make sure every dollar you deposit leads you to prepare for when you stop working.
- RSA access
Ideally, your RSA provider should allow you to view your RSA details online or via a mobile banking app, given the widespread use of the Internet now.
How does a retirement savings account work?
An RSA is like regular savings accounts or products. If you compare it with super, you’ll see it is different since it does not follow a trust structure as a super fund does.
Still, RSA is in line with superannuation regulations and its tax advantages. However, with this type of retirement account, even your tax-free portion can earn interest. It will provide higher interests, unlike regular accounts for savings. Upon reaching the preservation age or meeting conditions for release, you can start drawing funds.
While an RSA and super will have similar tax advantages, super has higher returns because it invests a large portion of your fund into shares, but that comes with high risks as well. As a piece of advice, use RSA, if you prefer low risk.
Is a savings account good for retirement?
RSA offers a sense of comfort for a future life, not to mention being ideal for short-term financial goals and emergency fund. With an RSA, you may get by even when you stop working.
It can also serve as a financial buffer. In times of dire need, say your business temporarily ceased operation or you’re looking for a new employer, you’ll have access to your fund. It’s not much of an investment, but it’s useful. Unlike the super, the RSA allows you to get money even before your preservation age.
Advantages and Disadvantages of RSA
Before you open an RSA, consider a range of benefits and if your financial goals are met. You may check these upsides and downsides.
- An excellent way to save: Since you might receive a higher return rate than standard bank accounts, RSA is an ideal way to start saving money for when you no longer work and only staying home.
- Flexible pension payment: With this feature, you may choose how much to receive and how often you get paid.
- Tax advantages: You may have tax advantages in an RSA close to what you may receive from a superannuation fund.
- No fees: Search for those that do not charge for any joining, maintenance, and administrative fee, and even commissions.
- Easy access to money: With RSA, you may easily access your money in case of an emergency. You need not wait until your preservation age.
- Low risk: RSA has a low risk with a reliable return rate.
- Becoming rare: RSA initially meant to aid Australians in saving for retirement until the super fund became more popular. Now, few Australian financial institutions provide RSA services.
- Low return potential: Unlike a super fund, RSAs offer low returns. Your money will only grow by a small amount over time.
Other tips for using an RSA
Since you’ll be saving for your future, it would be best to note some things before you decide to use an RSA.
- Read the terms and conditions
Not understanding the important information in the terms and conditions might put you in a tight situation eventually. It helps you read the product disclosure statement (PDS) and other information, such as tax, credit licence in detail before signing up for an RSA.
- Compare with other plans
There are going to be various plans from financial institutions. Before you open an RSA, search and compare the information, even tax advantage, with similar products, such as a super. Doing so helps you discover what suits your financial needs best. Compare with a standard superannuation fund to gauge how competitive interests are.
However, keep in mind that the rate of return investment into a standard super fund is not guaranteed. It will help to compare plans to find what works best for you.
At this rate, preparing for the future is vital. However, before deciding to apply for RSA products, please note and make sure that every detail, such as interests, tax advantage, and many others, aligns with your priority and need.