The saving disgrace

Given record low interest rates, it’s hard times for people with savings in the bank, writes Sophie Elsworth

SAVERS are getting hit by rockbottom returns on their cash and now one in five accounts has interest rates lower than the official cash rate.

The Reserve Bank of Australia has kept the cash rate at a record low of 1.5 per cent since August and while this is great news for mortgage customers, it’s the opposite for savers with cash in the bank.

New analysis by financial comparison website Mozo has revealed financial institutions are continuing to trim their interest rate offers and already 12 providers have slashed their online savings account rates in 2017.

Mozo spokeswoman Kirsty Lamont said consumers needed to pay extra attention to deals on offer because many would struggle to deliver any gains from keeping cash in the bank.

“The average ongoing savings account rate is now a shockingly low 1.88 per cent – nearly 45 basis points lower than what it was just 12 months ago,’’ she said.

Ms Lamont said it was a “tough environment” for savers now and they should expect to be hit by more out-of-cycle savings account rates in the coming months.

Savers have also been warned when hunting for competitive interest rates to check whether they are signing up to an introductory offer or a deal that will continue.

Mozo’s database shows the best ongoing interest rate is 3.05 per cent but there are often requirements that come with this, for example a minimum monthly deposit and no withdrawals. On $10,000 cash savings in the bank at the average rate of 1.88 per cent, the annual return is $189.63. For the same amount of savings on the highest ongoing rate of 3.05 per cent, the annual return is $309.30. Finance expert Heidi Armstrong urged consumers to go on a mission to find a competitive rate and avoid automatically going to your existing financial institution.

Keeping savings with a different bank can make it harder to transfer funds out of savings and into a daily account.

“If your money is harder to access – that isn’t necessarily a bad thing,’’ Ms Armstrong said.

“When saving, don’t overcommit and then constantly dip in to your savings account.

“Small amounts here and there can add up to big amounts over time – especially if you keep it out of sight and out of mind.”

Ms Lamont also urged savers to become a “rate tart” and move their money around every few months to take advantage of the introductory rate specials available.