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.
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 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.”