Competition in the savings space is heating up, new research from Australia’s leading financial comparison site, RateCity (www.ratecity.com.au), shows.
It found that one in five online savings accounts has a maximum rate of 4 percent or higher, and ranging up to 4.62 percent. And interest rates on some online savings accounts are now higher than variable home loan rates – and nearly twice the cash rate.
That is 0.13 percentage points above the lowest variable home loan rate (4.49 percent), and 2.12 percentage points above the cash rate, which is tipped to remain on hold at 2.5 percent at today’s Reserve Bank board meeting – and for the foreseeable future.
Alex Parsons, CEO of RateCity.com.au, said there is strong competition in the savings space, which is great news for the millions of Aussies with a deposit account.
“If your savings account doesn’t have a ‘4’ in front then it’s time to shop around and get a better deal,” he said.
“Interest rates haven’t favoured savers in recent years, and even now the average online savings rate is just 3.14 percent, while the top 12 month term deposit rate is 3.9 percent on $50,000 deposits.
“Yet there is competition at the pointy end of the market. It’s not just the big four banks that offer attractive rates for online savings accounts – smaller banks like UBank, ME Bank RaboDirect and ING Direct all offer great rates now,” he said.
Last fortnight, ME Bank lifted its online savings account rate from 2.9 percent to 4.6 percent by adding a new bonus rate for new accounts – the first out-of-cycle savings rate hike this year.
“We know there is strong demand for high deposit rates from households, which have a record $831 billion in cash and term deposits, according to latest Australian Bureau of Statistics figures,” he said.
“ABS data shows deposits represented 22.1 percent of household financial assets in the December quarter, compared with the decade average of 20 percent.”
Yet many Australians may be missing out on the great rates, he added. CoreData’s latest Australian Investor Report supports this, revealing that only 22.2 percent of respondents said they were satisfied or very satisfied with the returns their cash assets had achieved over the past year.
Parsons said this reaffirms the importance of shopping around to find a great deal, but he also added that there were a few tricks to getting the top rates.
“Not surprisingly, the first thing most people look at to compare savings accounts is the interest rate,” he said. “It’s a good place to start, but you need to go one step further and look at the bonus or promotional rate.”
“For example, UBank has one of the top rates in the market at 4.62 percent interest, but only if you deposit $2000 into a linked USaver Ultra transaction account each month. If you don’t do this, the rate falls back to 3.56 percent – still good, but on a $50,000 balance, that’s $550 of annual interest you won’t be making.
“Deposit accounts is one area of the banking and finance market that’s incredibly competitive, where ‘switching costs’ are low, and information is plentiful. There’s no reason to be stuck with a low-interest account, so compare online savings accounts and start generating more interest income today.”