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Resuscitate your nest egg with these simple tips

Alex Ritchie avatar
Alex Ritchie
- 5 min read
Resuscitate your nest egg with these simple tips

Savings accounts and term deposits in Australia have taken a bit of a kicking recently, thanks to the Reserve Bank of Australia (RBA) cutting the cash rate to an historic low of 1.00 per cent.

It’s not good news for those who rely on interest earned from savings, especially those in retirement. These Aussies will certainly be feeling the pinch as financial institutions slash savings account and term deposit rates to record-lows.

The major issue is that there’s currently no pressure on the banks to get your savings on their books. A low RBA cash rate means all competition is in home loans at the moment. Institutions don’t need to lure new customers with competitively high rates. Nor do they need to offer you cashback offers like they would with home loans.

Here are a few simple steps you can follow to help boost your nest egg.

Term deposits

Term deposits are a low-risk way for Aussies to watch savings grow – particularly if they’re prone to dipping into them. This is thanks to the ability to lock in rates for a set period of time and penalties around withdrawing your money early.

But when rates are shrinking and shrinking, it’s time to take action. 

  1. Call your lender and ask for a better rate

RateCity.com.au research found that from June to September 2019, the average 3-year term deposit rate paid at maturity (on a balance of $20k) fell from 2.26 per cent to 1.66 per cent. Over a three-year term, this is a loss of $360 in interest. 

Term deposit rate cut example:

Deposit amount

Savings duration

Interest rate

Final balance at end of term

Interest earned

$20,000

36 months

2.26%

$21,356

$1,355

$20,000

36 months

1.66%

$20,996

$995

With two more RBA cash rate cuts expected, there’s never been a better time to be proactive.

Most providers will negotiate on the advertised rates for their term deposits, particularly if you have a decent deposit. While competition has dwindled in term deposits, banks still want you in their books, so it’s worth picking up your phone and asking for a more competitive rate. Chances are you’ll get one!

  1. Compare your options

The easiest way to get a better rate is to give yourself a better rate. Use comparison tools to find a range of term deposits with competitive rates, as well as look over potential fees and costs.

Keep in mind that exiting a term deposit before the deposit term is up can result in exit penalties and fees. This should ideally be reserved for when your term deposit period has come to an end.

The highest interest rate offered by a term deposit on RateCity.com.au’s database is currently 2.00 per cent.

High rate 3-year term deposits:

Company

3-year interest rates (%)

Interest earned
($20k balance)

QBANK

2.00

$1,200

Australian Unity

2.00

$1,200

Community First Credit Union

1.95

$1,170

Australian Military Bank

1.95

$1,170

The Mutual

1.90

$1,140

Source: RateCity.com.au.

Note: Data accurate as at 16/09/19. Interest accrued annually.

Savings accounts

Gone are the days of savings account interest rates up to 7 per cent, as financial institutions slash their savings account rates left, right and centre.

In fact, RateCity.com.au research has found that from June to September, the highest conditional savings account rate offered by a bank fell 50 basis points to 2.50 per cent.  

If you rely on savings accounts to boost your nest egg, you’ll need to do more than compare other institutions. A major factor savers should keep in mind is inflation.

  1. Fight against inflation

A general rule of thumb is to keep your savings account interest rate above the rate of inflation. With inflation currently at 1.6 per cent and many savings accounts dropping under 2 per cent, the fight has never been more difficult.

That’s why it pays to shop around. Unlike term deposits, savings accounts aren’t tied down to a set term with penalties if you leave. Comparison tools are a great way to find institutions offering more competitive rates. If you’re unhappy with your current savings account rate, or it’s below the inflation rate, you might consider switching.

  1. Meet the conditions

You might be unaware that your savings account has a set of conditions that you need to meet to receive the maximum interest rate. Or perhaps your bank has recently changed these conditions and you’ve been following outdated instructions.

It’s crucial that you stay on top of these, as it could mean the difference between a rate of 0.50 per cent, and one of 2.50 per cent on your nest egg.  Check your savings account provider’s website at least once a year to ensure you’re still meeting the conditions of your account.

Conditional savers with high interest rates:

Company

Account name

Base rate (%)

Maximum rate (%)

Conditions

Bank of Queensland

Fast Track Savings Account

0.35

2.50

Deposit $1k monthly to linked account.

Up

Saver

0.50

2.50

Make 5+ card purchases per month.

MyState Bank

Saver Account

0.80

2.50

Deposit of $20, 5 card purchases monthly on linked account.

86 400

Save Account

0.40

2.50

Deposit $1k monthly to linked account.

UBank

USaver with Ultra

1.35

2.41

Deposit $200 monthly to linked account.

Source: RateCity.com.au

Note: Data accurate as at 16/09/19.

Disclaimer

This article is over two years old, last updated on September 16, 2019. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent savings accounts articles.

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Product database updated 19 Apr, 2024

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