Savers roll dice in risky plan for returns

FRUSTRATED first home savers and retirees risk playing a dangerous financial game as savings account interest rates sink to new lows.

The latest Reserve Bank of Australia figures show interest rates on term deposits, online savings accounts and cash management accounts have plunged 70-90 per cent in the past nine years.

Some savers are turning to riskier forms of income that may derail home deposit or income plans.

Investment groups and advisers have noticed rising numbers hunting higher incomes, and RateCity spokeswoman Sally Tindall said retirees had been worst affected.

“The problem is that savings accounts and term deposits don’t deliver much more than the current inflation rate,” Ms Tindall said.

“First home buyers are also sitting on the wrong end of the interest rate seesaw.”

Savings account interest is taxable, which means many people effectively lose money on cash deposits.

Online savings accounts paying 7.3 per cent interest in August 2008 today pay 1.65 per cent, RBA figures show. Bonus saver accounts have dropped to 1.9 per cent and term deposit rates have dropped from 8.25 to 2.25 per cent.

AMP Capital chief economist Shane Oliver said savers waiting for a rebound in rates “will probably be waiting a while”, perhaps not until 2019.

“We are probably in an environment where the official cash rate and therefore bank deposit rates go sideways for another 12 months,” Dr Oliver said.

He said before switching money to higher risk investments, people should ask themselves if they “could stomach any volatility at all”.

Planning for Prosperity senior adviser Bob Budreika said some retirees and savers were “ready to jump” into higher-income investments, but should first consider when they might need the money.