When the best high interest savings accounts in Australia are paying customers just 3.6 per cent before fees or other charges, your money might see more action under the mattress.
But that’s just what rate cuts do to money, they lower the value and the amounts that banks are prepared to pay you for your deposits, so brace yourselves.
“Cash and bank deposits are likely to provide poor returns – getting even poorer!,” said AMP Capital Chief economist Dr Shane Oliver in a note investors.
According to product comparison website finder.com.au, Aussie households will forgo up to $1.9 billion in interest on their savings, after the Reserve Bank of Australia cut the official cash rate to 1.75 per cent from 2 per cent last Tuesday.
Dr Oliver is among a handful of economics who see rates needing to go even lower, and possibly to 1 per cent in order to give the economy a meaningful boost.
Among the highest of the high interest earning savings accounts on the market are the following:
- ME Online Savings Account with 3.60 per cent.
- Citibank Online Saver with 3.40 per cent.
- St.George Maxi Saver with 3.20 per cent.
- Bank of Melbourne Maxi Saver with 3.20 per cent.
- BankSA Maxi Saver with 3.20 per cent.
This means that if you have $1000 in the bank, and are earning 3.6 per cent interest per annum or worse the average which is 2.52 per cent, you can expect to earn $36 or about $25 a year, and only if you meet the set savings criteria.
Keep in mind the cost of account service fees, which might be around $2.50 and then any ATM fees attached to withdrawals, or shock-horror, non-bank ATM fees at $5.
Australian households currently have $778.4 billion in deposit and savings accounts across the country, according to Australian Prudential Regulatory Authority (APRA).
If the rate cut is passed on in full to those $778.4 billion deposits in Australian banks, this would wipe out a staggering $1.94 billion in interest over the course of a year, says finder.com.au.
Based on forecasts from the Australian Bureau of Statistics (ABS) 2011 census data, this is the equivalent of $210 lost in interest on average for every household in Australia.
Bessie Hassan, Money Expert at finder.com.au, says that it’s crucial that savers work harder to find the best deals.
“We’re already seeing some lenders act on last week’s cash rate cut, with seven lenders announcing that they’ll be decreasing interest rates for savers, and others expected to follow suit.
“Five years ago we were enjoying term deposit rates as high as 6 per cent and now the average rate is 2.52 per cent for a six month term deposit based on a $50,000 balance.
If you factor in a 0.25 per cent rate cut on top of this rate – which would bring it down to 2.27 per cent – the slide in savings compared to five years ago is dramatic to say the least, equivalent to more than $900 in potential lost earnings,” said Ms Hassan.