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Savers the winners as banks declare war

Savers the winners as banks declare war

07 Apr, 2010 - 3 min read

It’s a battlefield out there. Our big banks have declared war on one another, and the victors are savers with cash on deposit. Anthony O’Brien reports.

March 7, 2010

The Reserve Bank’s March rate hike may have sent mortgage holders rushing to rebalance the household budget, but for anyone with cash on deposit, higher rates spell good news. This time around, the interest rate rise on many savings accounts has outstripped the Reserve Bank’s official rate hike, making it even more inviting to put your spare cash to work.

Savings accounts offer cheaper funds than wholesale market
There are good reasons why financial institutions are battling it out to attract household savings. In the aftermath of the global financial crisis, banks often pay more to borrow on the wholesale money market than they pay on consumer savings account.

Banks are especially eager to chase your spare cash because the Federal Government rolled back the wholesale deposit guarantee at the end of March. This won’t affect the security of personal deposits though it adds to the banks’ cost of wholesale borrowing, making your savings even more attractive as a source of funding.

Few savers are likely to worry about why rates on deposit are so strong at present. The bottom line is that now is the time to get a great deal on your savings.

Don’t be fooled by “savings” in the name
While there are rich pickings available for savers, it’s still important to shop around for the best deal. Some of the most generous rates on at-call deposits are being offered by online savings accounts.

Leading the pack is UBank (a subsidiary of National Australia Bank) with its USaver at 5.85 percent p.a. and ING Direct‘s Savings Maximiser also on 5.85 percent p.a. Bankwest‘s TeleNet Saver follows closely behind on 5.75 percent p.a. as well as the RaboPlus PremiumSaver on 5.75 percent p.a.

At the more miserly end of the spectrum, some self-titled “savings” accounts are paying below 1 percent interest.

If you compared these rates to the top online savings account rates, there is a dramatic difference. For instance, if you saved $1,000 each month for one year, you would earn $272 more in interest with a rate of 5.85 percent compared to 1 percent (provided these rates remain the same for the duration). The savings account with 5.85 percent returned $327 compared to only $55.

And swapping say, $10,000 from an account paying 0.5 percent interest to one paying 5.85 percent would mean earning an extra $550 in annual interest.

This makes it worth keeping an eye on the rate your current savings are earning.

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Disclaimer

This article is over two years old, last updated on April 7, 2010. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent savings accounts articles.

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Laine Gordon

Head of Public Relations

Laine Gordon is the Head of Public Relations at RateCity and an experienced journalist and research specialist. With a background in news and feature writing, covering finance, media and even food (a passion of hers) at Reed Elsevier publications, Laine brings almost two decades of experience to the team. Having covered major areas of interest to the general public from hip pocket issues to rising and falling interest rates and the impact to mortgages, credit and saving in Australia, she is passionate about researching and telling people’s stories to help others make better decisions about their own finances.