Andrea Sophocleous reports on when to let the banks woo you on a great deal.
March 17, 2010
We love to hate them, but the banks are doing their best to woo us, or at least to convince us to entrust our savings to them.
As Australian financial institutions continue to find it difficult and more costly to borrow money on the international markets, they are turning to us to fill in the gap. Our savings dollars are undeniably valuable to banks, which need easy access to cash. As a result, competition for our savings is heating up.
The most obvious manifestation of the banks' attempt to snare a bigger slice of savings is the rapidly growing interest rates being offered by online savings accounts.
ING Direct is the latest to hit the top five list of RateCity’s best online savings accounts, currently leading the charge with a 5.85 percent p.a. “welcome” interest rate on its Savings Maximiser account for the first four months. Bankwest begun the trend in mid-January, raising the rate on its TeleNet Saver account to 5.62 percent, but it has been overthrown by UBank’s USaver and RaboPlus’ Premium Saver with rates of 5.75 percent p.a.
These favourable rates sit comfortably above the cash rate of 4 percent as set by the Reserve Bank of Australia.
“It is historically unusual for online savings account rates to be so much higher than the cash rate,” says RateCity CEO Damian Smith.
“Typically online savings accounts will be on par with the cash rate but since the global financial crisis when funding was hard to come by, banks raised their rates to acquire more capital.
“With funding expected to remain tight this year, we expect online savings accounts will continue to be an easy option for financial institutions to acquire capital and rates are likely to stay historically high.”
UBank General Manager Gerd Schenkel admits interest rates on savings accounts will remain competitively high for the foreseeable future. “Deposit rates continue to be driven by the value banks place on them in light of their funding needs, rather than the cash rate. This situation is likely to continue while wholesale funding costs remain higher than historical averages and providers adjust to the post-GFC environment,” he says.
UBank intends to maintain its high rate on USaver, Schenkel adds, and is currently developing new savings products.
With such great rates being bandied about, now is the time to start saving. Depositing $5,000 in ING Direct's Savings Maximiser account now and adding $1,000 a month, you will earn about $628 in interest in one year alone. In two years, you can earn a more impressive $2,014 and end up with a total of about $31,014 in savings (providing the rate remains the same).
Like any financial decision, before you take the plunge, make sure to research your options to choose the account that best meets your needs.