State of play - savings accounts then and now

It’s getting harder and harder for savers in Australia, as savings accounts continue to dip below 1 per cent.

Savings accounts may be becoming nothing more than a safe place to store your money following two Reserve Bank of Australia (RBA) cash rate cuts in March. This has brought the cash rate down to 0.25 per cent off the back of five RBA-led cuts since June last year.

This means it’s more important than ever for Aussies to take charge of their finances and ensure they’re getting the most competitive deal on their savings account(s).

How the big four banks have changed in 2020

This week, ANZ and NAB announced further reductions to their savings account rates in response to the emergency Reserve Bank of Australia cash rate cut on March 19.

ANZ and NAB customers have now seen their standard savings account introductory rates fall by 0.70 per cent since the start of the year.

Australia’s biggest bank, CommBank, also cut bonus rates on its Goal Saver account by up to 0.35 per cent, while increasing the base rate on this account by 0.09 per cent, earlier this month.

Westpac has not yet announced if/when it will pass on the emergency RBA cash rate cut to its customers.

The big four bank customers aren’t alone. Analysis from RateCity.com.au shows that 29 banks have cut their rates twice since the 4 March rate cut.

For millions of savings account customers across Australia, that means the home renovation or house deposit they’re saving for will be, once again, further off than originally planned.

Big four bank standard savings accounts, then and now

Bank Product Intro term Intro rate - 1 Jan 2020 Intro rate - 15 April 2020 Intro rate change
CBA NetBank Saver 5 months

1.65%

1.00%

-0.65%

Westpac eSaver 5 months

1.66%

1.25%

-0.41%

NAB iSaver 4 months

1.70%

1.00%

-0.70%

ANZ Online Saver 3 months

1.60%

0.90%

-0.70%

Note: rates based on a balance under $50k.

Big four bank conditional savings accounts, then and now

Bank Product Base rate - 1 Jan 2020 Base Rate – 15 April 2020 Base rate - change Max rate - 1 Jan 2020 Max Rate - 15 April 2020 Max rate change
CBA Goal Saver

0.01%

0.10%

0.09%

0.90%

0.50%

-0.40%

Westpac Life

0.45%

0.40%

-0.05%

1.65%

1.30%

-0.35%

NAB Reward Saver

0.11%

0.05%

-0.06%

1.61%

1.25%

-0.36%

ANZ Progress Saver

0.01%

0.01%

0.00%

1.60%

1.00%

-0.60%

Note: rates based on a balance under $50k

Meanwhile, banks like ING, Bank of Queensland and ME Bank announced relief for their savers who qualified for bonus interest in the past three months, by letting them automatically earn bonus interest for the next three months.

Saving accounts plunging below inflation

Analysis from RateCity.com.au shows that the average maximum interest rate on a conditional savings account has fallen 28 basis points since January 1, and the average standard savings account base rate has fallen 15 basis points.

Average savings account rates, then and now

Date Avg. max conditional rate* Avg. standard base rate
15 January 2020 1.54% 0.52%
15 April 2020 1.26% 0.37%
Change -0.28% -0.15%

Note: average rates based on a $25k balance. *Excludes introductory rates.

While this may seem small, it can seriously add up when you consider inflation.

Experts recommend keeping your savings account rate above inflation, otherwise your savings may not be ‘growing’ at all.

  • Inflation is the rate at which the value of a basket of goods and services increases over time. Put simply, your money today may be worth less in a few years. For example, it’s the reason a movie ticket cost only a few dollars 50 years ago, compared to $20 or more today.

According to the RBA, the current inflation rate is 1.8 per cent. If your savings aren’t growing at the rate of inflation or higher, and you’re not making any additional deposits into your savings, then the value of your money may actually be decreasing over time. Your savings account might simply be just a safe place to park your money.

Searching for high interest savings accounts

As savings accounts dip further below inflation, it may become challenging for Aussies to see serious gains on their savings any time soon.

Shopping around for a more competitive savings account may be one option to consider if you’re not confident your savings account is earning you enough interest.

The easiest way to do this is to use comparison tools, such as comparison tables and calculators.

  • Savings account comparison tables allow you to filter down and compare a range of options designed to suit your specific financial needs. You can view a range of accounts maximum interest rates, as well as compare how much interest you may earn on your original deposit.
  • Savings account calculators can then help you calculate how much your savings may grow over time. This can be a handy resource when planning savings goals, such as a holiday, to see how long it will take to achieve this.

If you’re looking for a savings account offering interest rates above inflation, there are still options to compare.

RateCity’s database shows there are 14 savings accounts currently offering interest rates above inflation.

Market leading standard savings accounts

Bank Product Intro rate Intro Term Base Rate
Macquarie Bank Savings Account

2.65%

4 months

1.35%

AMP Saver Account

2.26%

6 months

1.05%

Rabobank Online Savings High Interest Savings Account

2.25%

4 months

0.80%

Heritage Bank Online Saver

2.20%

4 months

0.80%

Note: data excludes kids and pensioner savings accounts.

Market leading conditional savings accounts

Bank Product Base rate Max. rate Conditions
MyState Bank Bonus Saver 0.30% 2.00% Monthly deposit of $20, 5 transactions in linked account
BOQ Fast Tracker 0.20% 2.00% Monthly deposit of $1,000 in linked account
Suncorp Growth Saver 0.20% 1.90% Monthly deposit of $200, minimum one withdrawal a month
86 400 Save 0.25% 1.85% Monthly deposit of $1,000 in linked account

Note: data excludes kids and pensioner savings accounts.

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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.

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.

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 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 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 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.

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

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)

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.

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.