Savings interest rates still on downward slide

Savers need to hunt for higher cash returns, writes

Sophie Elsworth

SAVERS holding cash in the bank have been decimated by dismal returns as deposit account interest rates continue to tumble.

The Reserve Bank of Australia kept the cash rate on hold this month at 0.25 per cent, and while low rates have helped people paying off mortgages, it’s been the exact opposite for those relying on interest income.

A new analysis by financial comparison site Mozo shows, since March – when the RBA cut the cash rate twice at the height of the coronavirus pandemic – almost 100 deposit account rates have taken a hit.

Mozo spokesman Tom Godfrey said it had been a rough ride for savers who relied on interest. “The average rate is now just 0.74 per cent and it gets worse if you’re with a big four bank, with the average rate half that,” he said.

“Don’t assume you’re getting the average, though, as it could prove costly, with base rates just scraping in above zero.”

Savers investing $10,000 with one of the highest rates available of 1.85 per cent will earn $185 in interest, compared with $36 at an average rate of 0.36 per cent.

Savers also need to be wary of introductory rates that are high when you sign up but significantly fall once the honeymoon period ends.

ING Australia everyday banking lead George Thompson said the savings market was extremely competitive, and savers needed to hunt around to ensure they did not get dudded by a low rate.

“The key to getting the best savings rate deals is to be flexible with your cash and to look for accounts still offering good variable returns,” he said.

“You can look for accounts with good intro rates, but there are very competitive accounts where you can maximise returns with ongoing rates if you meet the right spending and saving behaviours.”

Savers should also keep term deposits – where the money is locked away for a set period – in mind as they can deliver a better return. However, be wary because penalty fees apply if you try to access the money before the fixed term ends.

Tribeca Financial chief executive officer Ryan Watson said, during this record-low interest rate environment, investors needed to review their investment time frame.

“The more time you have to invest, the more risk you can take with your investments, which will likely lead to a greater investment return,” he said.

“Cash is still the place to be invested if you have an investment time frame of two years or less.

“You more or less need to leave the money ‘at call’ if you need it over the shorter term.”

Mr Watson said other options to invest included a diversified index fund that invested across the sharemarket and was likely to deliver higher returns over the long-term.

‘The average rate is now just 0.74 per cent’