Interest rate cut only good for some

SAVERS with cash tucked in the bank face dismal returns as interest rates continue to tumble towards zero.

While the Reserve Bank of Australia’s move on Tuesday to lower the cash rate to 1 per cent was embraced by borrowers, the same was not felt by savers with cash deposits.

Latest analysis of bank savings accounts by financial comparison website Mozo found 63 at-call savings rates have reduced since the June rate cut by an average of 0.24 percentage points.

And more falls are expected on the back of this week’s consecutive cash rate move.

Mozo’s spokeswoman, Kirsty Lamont, said the situation was dire for savers.

“Savings rates are being crunched to the ground,” she said.

“It’s not a question of if the banks will pass through the July RBA rate but when.

“They have cut home loan rates by an average of 0.20 percentage points so if they don’t cut savings rates by a similar amount their net profit margins will suffer.”

Mozo’s database shows some of the country’s biggest banks are paying as little as 0.3 per cent interest on savings.

Ms Lamont urged shoppers to hunt around for better deals — Mozo’s database found highest ongoing maximum interest rates for savers is being offered by Bank of Queensland at 2.75 per cent — 1.17 per cent higher than the average.

While falling rates are bad for savers landlords could save money through lower loan costs.

That means that renters should not face any rental increases any time soon.

And part of the aim of the RBA cut was to help reduce unemployment which has risen slightly to 5.2 per cent.

CommSec senior economist Ryan Felsman said savers continued to chase yield and many were looking beyond keeping their cash in the bank.

“Banks are in a position where their margins are impacted by falling interest rates and like all businesses they are trying to preserve some profitability,” he said.

“This can result in reducing savings rates on term deposits.

“Self-funded retirees obviously rely on cash as part of their broader asset allocation or diversification.

“What we are seeing is a chase for yield in the sharemarket.”

Mr Felsman said those in a retirement phase should have exposure to conservative asset classes such as bank deposits and bonds.

The local sharemarket was up by 17 per cent at the end of June, which was the strongest start to the year since 1992.