Do most Australian banks have low interest rates on savings accounts?
Australian interest rates are at an all-time low at the moment and this means that all of the country’s banks had to follow suit and reduce their rates too. The RBA cut Australia’s official cash rate to a record low of 1.00 per cent in July 2019 and there’s been no sign of it going up any time soon.
Low interest rates are great news for borrowers, as their mortgages and loans fall in cost, but for savers they often mean sluggish performance.
While it’s true that your money won’t be growing at the seven per cent rate it had in 2008, you can still make the most of the interest rates on offer if you know what to do and which accounts to use.
Identify your best accounts first
While most banks currently have a base rate of between 0.5 and 1.5 per cent, they’re also offering lots of bonus rates and extra points for linking your transaction account to your savings account. Spend some time comparing the savings accounts on the market right now, but don’t just stick to the Big Four, as you might find a sweet deal in an unfamiliar corner.
For example, there’s the RAMS Saver which offers 2.55 per cent variable interest for balances up to $500k including 1.40 per cent bonus when you deposit $200 each month and make no withdrawals.
Work out a clever savings plan
What are your savings goals? Are you saving up for a particular purchase, like a new car, a holiday or some home improvements? Are you saving up a larger sum like a house deposit, or working towards an eventual retirement fund? If you know what your goals are, you can tailor your savings campaign towards them.
You need to work out how much you can save and how much time you have to let interest do its work on the fund. For instance, if you’re in your early thirties and saving for retirement, a long–term savings account that you don’t touch is important. For more imminent events, like a wedding or holiday, you need to be a bit more aggressive, both with your deposits and your search for the best savings account with high interest.
You also need to free up money to save up
Have a look through your regular expenses to see what you can trim off. It could be a magazine subscription that you’re no longer interested in, or your coffee habit. One definite bonus to the current low interest rates is the fact that your loans, mortgage and maybe even your credit card payments may come down a bit if and when you refinance them. If you’re paying a few tens of dollars less on your home loan each month then plough them into your savings account.
Make as many deposits as possible
The best way to maximise your savings is to make sure you actually save money. If you set up a direct debit so that a portion of your salary goes straight into your savings account as soon as you’re paid, you can automate the savings process and ensure that your balance grows every week.
Your money will grow faster if you keep adding to the fund. Ok, the interest rate is low, so give it more to work on. Make sure you make at least one deposit a month, as close to payday as possible and then add to it throughout the month if you can. If you’re wondering what is a savings account going to offer you that a term deposit can’t, it’s the facility to add more money at will.
Grit your teeth and part with windfalls
If you get a tax refund or another pleasant surprise, then deposit it into your savings account. It can be hard to part with that cash, but worth it in the end.
Look for bonus opportunities
Some savings accounts pay bonus interest on top of their standard variable rate if you fulfil all the conditions. These conditions can include:
- Depositing a minimum sum every month, from $50 to $1,000
- Making no withdrawals or a limited number of withdrawals each month
- Keeping a minimum balance, and
- Linking your transaction account or opening one with the same institution.
It’s worth making the effort to satisfy these conditions because if you fall to the standard variable rate you could be crawling along on 0.50 per cent or even lower.
Stay steady and disciplined
It's hard to save when there’s so much temptation around. New shoes, a holiday or just a fancy meal out. Try to find other ways to treat yourself, like collecting reward card points or looking for coupons instead of splurging.
Look beyond your regular bank
You shouldn’t just sign up to a savings account with your main bank just because you’re familiar with it. It’s important to shop around so that you know you’ve got the best rate savings account you can find. Look out for fees, too, because anything you pay on your savings is money down the drain.
It doesn’t take long to do a savings account interest rate comparison, especially if you can see the market offerings altogether on one screen, so don’t make any decisions until you’ve looked over at least ten accounts.
Think about a term deposit
While the interest rates on savings accounts are both low and linked to the official cash rate (which means they could be cut alongside it), term deposits have fixed interest rates for the life of the account. Generally, the longer the term (from one month to five years) and the bigger your deposit, the better your rate.
One good example is U Bank’s Personal 12–month term deposit, which pays 2.45 per cent on balances over $1,000 as long as you collect your interest annually. If you receive it monthly, the rate drops to 2.35 per cent.
At present, term deposits have some of the best interest rates available, so although you don’t have the same access to your money as you do with a savings account, you know what you’ll be getting at the end of the term.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.