Banks continue to slash savings account rates out of cycle

Banks continue to slash savings account rates out of cycle

Does your savings account seem a little lacklustre lately? You’re not alone, as RateCity research reports that 46 banks have cut savings account rates in the last month.

Australian savers continue to bear the brunt of low interest rates, with rate cuts continuing to come out-of-cycle to the Reserve Bank of Australia’s (RBA) cash rate. This includes cuts from banks big and small, such as CommBank, NAB, ING, St George, AMP and Suncorp.

Typically, banks and lenders will amend their non-fixed interest rates based on the cash rate, as set by the RBA. Put simply, when the RBA cuts the cash rate, interest rates typically follow downward. When it hikes the cash rate, banks increase rates. Low rates lead to happy borrowers with home loans, or those looking to take out a personal loan. But it also means low interest rates and lower returns on savings products, like term deposits and savings accounts.

The RBA have kept the cash rate on hold at 0.25 per cent since it made an emergency cut in mid-March, in response to the coronavirus pandemic and its immediate impacts on the Australian economy.

However, RateCity research has found that more than 90 savings accounts have had their rates cut in the last month alone.

How much have savings rates dropped in the last year?

RateCity Research has found that for big four bank customers, these savings account cuts have been significant.

A year ago, the average big four bank ongoing saving rate was 1.77 per cent. Now, it is just 0.81 per cent. This is a difference of 0.96 per cent in a year, however, the cash rate has only dropped by 0.75 per cent during this time.

Realistically, what this may mean for your nest egg is that you are potentially not getting as high of a return as you should.

Big four bank ongoing savings rates - then and now

Bank Account Aug 2019 Max rate Aug 2020 max rate Difference
CBA GoalSaver 1.15% 0.50% -0.65%
Westpac Life 2.10% 1.00% -1.10%
NAB Reward Saver 1.86% 0.90% -0.96%
ANZ Progress Saver 1.95% 0.85% -1.10%
Big four bank average   1.77% 0.81% -0.96%

Source: Note: based on a balance of less than $50K. CBA has higher rates for higher balances. Data accurate as of 10.08.2020.

All hope is not lost however, as there are some competitive ongoing savings rates still sitting above 1.50 per cent available from competitor banks for those willing to make the switch.

Keep in mind that it’s important you do your research around what conditions you may need to meet on a new savings account before you switch. For example, ensure that your budget suits any minimum deposit criteria, or that you won’t be penalised for withdrawals if you’re the type of person who dips into their savings.

Highest ongoing savings rates

Bank Max rate Conditions for max rate
Australian Unity 1.75% Deposit $250+ per month and make no withdrawals.
Bank of Queensland 1.65% Deposit $250+ per month and make 5 purchases in linked account.
ING 1.65% Deposit pay of $1,000+ and make 5+ card transactions per month
MyState Bank 1.65% Deposit $20+ per month and make 5+ purchases in linked account.

Source: Note: Excludes accounts with age restrictions. Data accurate as of 10.08.2020.

Some of the highest ongoing rates for young Australians

Bank Account Max rate Conditions for max rate
Westpac Life

(ages 18 to 29)

3.00% Balance needs to be higher every month, plus 5 purchases with linked account. For balances up to $30K
Bank of Queensland Fast Track Starter

(ages 14-25)

2.50% Deposit $200+ into your linked account and make 5+ purchases per month. For balances up to $10K

Source: RateCity. Note: Data accurate as of 10.08.2020.

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Learn more about savings accounts

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.