Stop shrinking savings

You can still earn a solid income from bank deposits, writes Anthony Keane

INTEREST rates paid on savings accounts have dropped below an average 1 per cent for the first time, prompting some Australians to hit the panic button in the hunt for higher returns.

Analysis of 184 savings accounts by comparison website Mozo has found the average ongoing savings rate – excluding short-term bonus rates – sits at 0.99 per cent. It found many banks have savings rates below 0.1 per cent.

Some savers are switching money to riskier investments such as shares, while others are diverting cash to fixed interest investments, such as peer-topeer lenders or corporate debt.

But for many people, the safest strategy is simply to seek out better savings rates.

Mozo director Kirsty Lamont said customer inquiries had doubled since the Reserve Bank cut interest rates in October for the third time this year.

“A lot of savers out there have reached panic level,” she said. “Even though average savings rates have dropped below 1 per cent, you can still get 2.25 per cent by shopping around.

“At least half a dozen providers are still offering the opportunity to earn up to 2.25 per cent in a savings account, but be prepared to meet some stringent conditions.”

These accounts may have special rules for deposits or withdrawals, or may be linked to a transaction account with the same financial institution.

Artist Marc Spurgin, 59, switched banks to get a better deal on his cash savings, and has also put money into property instead of bank accounts.

“I’ve still got money in the bank but had to shop around for a better interest rate,” he said.

Mr Spurgin said low rates – which had hit many retirees the hardest – were “regrettable across the board”.

“My parents are in their 80s and they’re trying to survive on their interest,” he said.

Beyond Bank Australia’s general manager customer experience, Nick May, said there had been an increase in people asking about savings options.

He said savers could look to bonus saver accounts that “reward you with a higher interest rate if you save regularly and don’t make withdrawals”.

Term deposits were also worth considering, he said.

“Rates vary, depending on how long you invest your money, so it is worth looking at all the different time frames,” Mr May said.

“Of course, the added bonus is that because your money is invested for a certain period of time, term deposits also help deter you from spending.”

Savers’ money has also been flowing into the sharemarket, where bank shares pay dividend yields of 5-6 per cent. But banks have been dropping dividend payouts, and sharemarket volatility could see 10-20 per cent wiped off stock values when the market eventually falls.

Ms Lamont said savings accounts were the “path of least risk”. “It’s not the time to be experimenting or doing anything crazy with your savings,” she said.