Australians are in savings mode – latest figures show we’ve accumulated more than $590 billion in deposit accounts.
But with a substantial portion of this languishing in transaction accounts, which pay little-to-no interest, Aussies are missing out on an estimated $7 billion in lost savings interest, which could have been accrued in high-interest savings accounts.
RateCity estimates that around one-quarter of deposit funds currently sit in low-interest-earning accounts, but could be earning up to 5 percent interest per annum.
Michelle Hutchison, spokeswoman for RateCity, said many Australians either don’t understand the difference between a transaction account and a savings account, or aren’t sure.
“Many of us will have our wages paid directly into a transaction account every week, unaware that there are alternatives paying interest as high as 5 percent on deposits,” she said.
“That might not sound like much, but by simply asking your bank to open a high-interest saver, you could be a few hundred dollars better off each year.”
RateCity found the amount of missed interest by customers not simply asking their bank to open a savings account on their behalf is an estimated $5.2 billion, assuming a typical high-interest-savings account rate of 3.5 percent.
“The amount is obviously a lot more if you shop around using a site like RateCity to find top of market rates, which at the moment is 5 percent,” she said. “At that rate, we estimate that collectively customers would be more than $7 billion better off in the first year.”
Transaction accounts fill banks’ coffers
If the possibility of earning more money isn’t incentive enough to open a high-interest savings account, the results of a separate study by consumer watchdog, Choice, may provide the impetus Australians need.
Choice head of campaigns, Matt Levey, explained that Australian banks use domestic deposits as an imperative part of their funding mix, especially when global markets are instable.
“While those with term deposits and high-interest savings accounts are compensated accordingly, if you have additional money in a transaction account then you’re gifting the banks free funding, which they can use to lend and earn interest,” he said.
On a balance of $5000, a savings account paying a rate of 5 percent earns around $20 per month interest, says Hutchison.
“Even small incremental savings – like adding $100 a week – can really add up,” she said. “So do your homework, compare savings accounts and earn yourself some money on your cash – what have you got to lose?”