Zeroing in on savings rates

The RBA’S latest cash rate cut means lower returns for savers, writes

Sophie Elsworth

PALTRY savings rates are hitting people with cash deposits harder than ever before and some accounts are delivering next-to-no returns.

While borrowers were rejoicing with the Reserve Bank of Australia’s cash rate cut to a record-low of 0.75 per cent last week, savers are certainly not doing the same.

Analysis from financial services firm Canstar found on flexible savings accounts – those that don’t have lock-in terms – for $10,000 in savings the maximum rates are just 1.75 per cent. For three-year term deposits of $10,000, the maximum rate is only slightly higher at 1.9 per cent.

Canstar’s group executive of financial services, Steve Mickenbecker, said “any rate decrease is a black day for savers and self-funded retirees in particular”.

“They will be hit again, there’s no question,” he said.

“Banks have to fund their book and they do it with depositor’s money and wholesale funds.

“If they lower the home loan interest rates they have to lower the deposits.”

He said the base rate on many savings accounts – or the minimum amount – was alarmingly low too.

“It’s down to 0.01 per cent on some accounts so savers are really going to suffer,” he said.

“It’s hardly worth having the money in there.”

Long gone are the days back during the global financial crisis when banks were delivering customers interest rates around 6 or 7 per cent.

AMP Capital chief economist Shane Oliver said depositors needed to rethink their savings strategy. He said if they relied on bank interest rates they were going to struggle to make decent returns.

“It’s bad news for savers,” Dr Oliver said. “We already have record-low rates on deposits and now they are going to be even lower. We are looking at as we go into next year, so it’s certainly not good news for savers like my mother.”

Dr Oliver said if people were prepared to take on some risk they could consider investing in different asset classes such as shares.

Banks including the nation’s largest financial institution, the Commonwealth Bank, last week said they were trying to balance the needs of borrowers, savers and shareholders.

CBA cut its key deposit product – the Netbank savings account – by 0.05 percentage points, bringing the rate down to a piddly 0.1 per cent.

All of the big four bank’s flexible savings accounts’ base rates are now between just 0.1 and 0.15 per cent.