Banks trick savers

People stung by record low interest rates should look at switching banks for a better deal, writes ANTHONY KEANE

SNEAKY changes to savings account interest rates are further shrinking Australians’ ability to boost their cash.

Interest rates paid on deposits are already at record lows, and now banks are dropping the ongoing interest rates – known as base rates – on their flexible savings accounts.

They are hiding the cuts by lifting the accounts’ short-term promotional interest rates.

Between March and September, nine banks – including all of the Big Four, except ANZ – dropped base rates while lifting promotional rates, data from research group Canstar shows.

The end result for customers is they get paid a paltry interest rate as low as 0.5 per cent unless they continually switch accounts and banks to chase promotional rates.

Steve Mickenbecker, Canstar’s group executive of financial services, said banks were trying to preserve profits while the people hit hardest were retirees and those saving for a home, who had not seen an official rate rise for eight years.

“Banks have knocked down their base rate and bumped their promotional rate so they can still advertise the same rate,” he said.

“After three or four months, you lose the promotional rate. Anyone who has an account and has been there for a while isn’t getting the promotional rate.”

RateCity research director Sally Tindall said the practice was putting people’s savings in reverse.

“If you’re earning under inflation – currently 2.1 per cent – your money is going backwards,” she said. “In some cases, the overall rate is higher than it used to be, but only because the promotional rate has been jacked up to disguise a decreasing base rate.”

NAB, Westpac and CBA recently cut base rates from 0.8 to 0.5 per cent. NAB’s iSaver promotional rate climbed from 1.1 to 2.05 per cent, and Westpac’s eSaver and CBA’s NetBank Saver promotional rates rose from 1.71 to 2.01 per cent.

“When looking for a savings account, look for one that at least offers you more than inflation on an ongoing basis, unless you’re going to be jumping from bank to bank every three or four months,” Ms Tindall said.

“You’ll be better off with a higher ongoing rate rather than a quick-hit promotional rate.”

Ms Tindall said some higherrate accounts might have conditions such as making a minimum monthly deposit or no withdrawals, but if you could meet those conditions they were a better option.

Term deposits were an option for savers who did not mind locking money away for a while, she said.

Mr Mickenbecker said the only other option was to regularly switch banks.

“The reality of life right now is you won’t get rates above 3 per cent,” he said.

“It’s not a great time for savers, who very much need the Reserve Bank to move rates up.”