The Australian economy is in unchartered waters. Interest rates have never been so low and there are signs they could drop even lower before the year’s end.

The availability of cheap money has boosted house and share prices and alleviated stress over mortgage repayments.

But it’s also eaten into the incomes of retirees, made it harder for renters to save that elusive house deposit, and arguably made the economy less efficient by propping up so-called “zombie firms”.

Whatever your take, Reserve Bank governor Philip Lowe has repeatedly said that low interest rates are here to stay. And some economists have described them as a decades-long phenomenon.

So what does that mean for household budgets?

The answer to that question varies according to each person’s individual circumstances.

Home owners with variable-rate mortgages will have lower minimum repayments and can pay off their loan much faster if they continue making the same repayments. This will bring down the amount of interest paid over the life of the loan.

Meanwhile, savers will earn diddly-squat on the money stowed away in regular savings accounts.

ANZ, for example, is paying an ongoing interest rate of just 0.05 per cent on its standard savings account. The other big four banks are paying 0.10 per cent or 0.11 per cent. That’s well below the current rate of inflation (1.8 per cent), meaning the money put into these accounts is losing value over time, not increasing.

Of course, most home owners are also savers. And so tumbling interest rates make it hard for many Australians to get ahead.

Craig Sankey, head of technical, research and advice services at Industry Fund Services, said it’s important not to get too carried away with the big picture, though.

Set some goals

Although these broader economic factors are important, Mr Sankey told The New Daily the first thing people should do is set some goals and calculate how much they can save each month.

“Work out exactly what you want and the timeframe in which you want to achieve those goals,” he said.

Then it’s about assessing your appetite for risk.

The hunt for yield

Depending on your investment time-frame and risk profile, here are some ways to put your money to better use – whether you’re saving for a house deposit in five years or a holiday at Christmas.

(As a guide, short-term refers to one to three years; medium-term refers to three to five years; long-term, anything longer than five.)

Set up a high-interest savings account (short-term, no risk)

Although the big four are offering a maximum ongoing rate of 0.11 per cent on their standard savings accounts, a handful of neo-banks are offering rates above 2 per cent.

Xinja and 86 400 are both paying 2.25 per cent on their savings accounts, with deposits up to $250,000 guaranteed by the federal government.

You can find other alternatives here, but whatever you do, don’t leave your savings in a transaction account paying zero interest – make your money work harder for you.

Mr Sankey said it’s a good idea to stow away roughly three to six months’ worth of salary into one of these accounts before venturing into more riskier investments. This gives you a strong enough buffer to withstand a major shock such as the loss of a job or a major appliance breaking down.

Term deposits (medium-term, no risk)

Term deposit accounts are savings accounts which pay a fixed interest rate over a set period. They normally offer a greater return than regular savings accounts, but customers cannot access their funds until the agreed term expires.

Terms range from six months to five years. You can find some examples here.

Graph from finder.com.au

A mixture of fixed-interest, shares and bonds (medium-term, medium risk)

Bonds are the most common form of fixed-interest investments. They are low-risk, especially if bought from a government, and offer a guaranteed rate of return over a set period of time.

Shares, meanwhile, are considered the riskiest asset type as the value of companies goes up and down on a regular basis. Some pay dividends (a portion of the profits) to shareholders, while others choose to reinvest profit into the company.

Buying a mixture of both is therefore seen as medium-risk. And the easiest way for novice investors to do this is by investing in a managed fund through a company such as Vanguard or BetaShares.

Each fund will have a different allocation of shares and bonds and should explain the risks associated. The benefit of investing through Listed Invested Companies (LICs) and Exchange Traded Funds (ETFs) is the diversification it offers. It allows you to hedge your bets instead of putting all your eggs in one basket.

Shares and property (long-term, higher risk)

“In a low-interest-rate environment, shares and property have tended to do very well – mainly because the dividends and rent are sometimes paying above the RBA cash rate, and then you’ve got potential capital growth on top of that,” Mr Sankey said.

“So that’s why those investments have gone really well. But they are long-term investments and they do have some volatility, so you as an individual have got to be prepared for short-term ups and downs and have a long-term investment timeframe.”

For those without the funds to buy an investment property, Australian real estate investment trusts (A-REITs) and factional property funds such as BrickX offer an alternative way into the market.

Individuals with a particularly high risk appetite could even take out a personal loan at a very low interest rate with the specific intent of investing that cash into shares or property, Mr Sankey said.

“But with the people who are getting the bigger mortgages, or loans to invest because interest rates are so low, it’s important for them not to overcommit to debt,” he added.

“The experts, the economists, the Reserve Bank expect rates to be low for a long time. But no one really knows, there’s no guarantee, and at some point rates are going to go up so it’s always important to keep a buffer.”