Banks slash interest on savings accounts ahead of a forecast rate cut

Banks slash interest on savings accounts ahead of a forecast rate cut

Banks are slashing the interest customers can earn on their savings in a move widely seen as preempting a cash rate cut by the nation’s central bank.

Commonwealth Bank and NAB have slashed the interest rates on their savings accounts ahead of the Reserve Bank of Australia’s coming board meeting, where the cash rate is expected to drop from 0.25 per cent to 0.10 per cent in an extraordinary reduction.

Banks set interest rates according to the cash rate. When it is reduced, interest on mortgages tends to lower accordingly, but so do the interest customers can earn on their savings accounts.

“The banks are doing a spring clean of their savings rates ahead of any official move from the RBA,” Sally Tindall said, research director at RateCity.

When your money makes less money

Commonwealth Bank and Westpac are the latest banks to announce interest rate cuts to select savings products, but they’re far from alone in decreasing the earning potential of people’s savings.

Of the 101 banks in the RateCity database, 50 have lowered the earning potential on their savings accounts by cutting interest rates just this month.

CBA cuts

Commonwealth Bank introduced 0.10 per cent cuts on the maximum rates of select saving accounts.

GoalSaver accounts with balances over $50,000 and Netbank saver accounts dropped to 0.75 per cent -- down from 0.85 per cent.

NAB cuts

NAB cut the rates on its Reward Saver and iSaver accounts by 0.10 per cent.

The bonus rate on its Reward Saver dropped to 0.65 per cent, lowering the maximum interest that could be earned to 0.70 per cent.

Similarly, the bonus rate on its iSaver account dropped to 0.60 per cent, lowering the maximum interest that could be earned to 0.75 per cent.

Interest rates could drop to zero

Many banks are offering a minimum interest rate of 0.05 per cent on select savings accounts -- including CBA and NAB.

But it’s possible these rates could drop to 0 per cent if the cash rate continues to fall, Sally Tindall said, head of research at RateCity.

“If the RBA cuts the cash rate on Melbourne Cup day, it’s likely we’ll see savings rates sink even further,” she said.

“Bonus rates are likely to bear the brunt of the cuts however some banks could make the difficult decision to cut their base rates down to zero.

“In fact, there are already a dozen banks offering a base savings rate of zero per cent, making some savings accounts nothing more than a safe place to store money.”

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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 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.

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.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

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.

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.

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 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.

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 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)

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.

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.

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 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