How to beat bank deposit interest rates
WITH interest paid on savings accounts still on the decline, Aussies are on the hunt for a better return on their cash investment. Rate reductions on term deposits, online savings and bonus saver accounts have accelerated ahead of a potential official rate cut by the Reserve Bank on November 3.
The average big four bank savings rate is below 0.3 per cent, while the best rate anywhere is 2 per cent. All major banks have cut savings rates since late September, and even the new breed of higher-interest, digitalonly banks — neobanks — are cutting payments, according to research group Canstar.
“(Neobank) Xinja has also announced deposits above $150,000 won’t receive any interest earnings, and 86 400 has revealed it will cap bonus interest earnings at $50,000 per Save account from 1 November,” says Canstar’s group executive of financial services, Steve Mickenbecker.
However, all top-end rates come with conditions or four-month promotional periods before dropping back towards 0.5 per cent. So where’s better places to stash your cash?
The answer usually involves being riskier with your money, which makes many savers uncomfortable.
SHARES
Investors can diversify their risk though ASX-listed exchange traded funds that spread money among many different companies. “Of course there’s a lot more risk than your bank deposit,” Mickenbecker says.
While share dividends pay incomes averaging 3.6 per cent, share prices plunged 37 per cent in March’s COVID collapse.
BONDS
Fixed interest can offer better returns than cash deposits, and there are managed funds and ETFs specialising in corporate bonds with annual returns currently above 2 per cent.
“You do have to understand the portfolio you are buying into — if it’s a 5 per cent return you know you have some junk bonds in there,” Mickenbecker says.
PEER-TO-PEER LENDING
These products — where personal loan customers are matched with individual investors — “are fairly accessible”, says comparison website Mozo.com.au’s Tom Godfrey.
Rates to investors are often above 3 per cent, although some have been affected by the pandemic.