How much of an interest do you take in interest? Is it, in fact, time to review your ‘interest’ interest? Interesting questions, both, and probably quite confusing!
To clarify, the interest we are referring to here is of the financial variety. This includes interest rates, of course. With another rate hike announced this month, Australians with mortgages and other debt know what this means.
However, there is another side to the interest rate coin, and it’s perhaps one in which many older Australians should be taking a greater interest.
When the Reserve Bank jacks up the cash rate, banks and lenders rarely waste time in following suit.
But banks will – at least some of the time – also raise the interest rate of their savings accounts when the official rate goes up. And for Australians lucky enough to have some money in the bank, this can mean good news.
Savings interest – which banks are giving us a fair go?
Financial comparison giant Canstar has done a thorough analysis of savings accounts across Australia and has uncovered some positive news.
As many as seven accounts are now offering interest rates that outperform the current inflation rate. These accounts have passed on in full the Reserve Bank’s latest hike of 25 basis points.
Leading the way is ME Bank’s savings account with a rate of 5.55 per cent. This is an ongoing rate, but it does come with some conditions. These include a deposit of at least $2000 each month.
Meanwhile, RadoBank offers an even higher rate of 5.75 per cent. However, this is an introductory rate only. It is available for four months upon sign-up on balances of up to $250,000 before reverting to 4.4 per cent.
A welcome change
Banks offering greater-than-inflation rates represents a refreshing change of attitude, says Canstar editor-at-large and money expert Effie Zahos.
“Until recently, money in the bank was going backwards,” she says.
“Interest rates on savings accounts were struggling to keep up with inflation. As the cost of living continued to bite, the purchasing power of our savings was softening.”
Of course, these savings interest rises are only good news for those who are able to make a deposit. That’s clearly not the case for a number of Australians right now. But for those who can, doing some prior research could be very beneficial.
If you have a solid amount of cash to invest, that research can repay you in spades. It’s easy to look at competing rates and think: “There’s not much difference between 4.5 and 5.5 per cent.”
And if your deposit amount is very small, that may be true. But for an account with $100,000, a 5.5 per cent rate will deliver $5500 versus $4500 at 4.5 per cent. That’s a $1000 difference – not something to be sneezed at – and it would be greater still for accounts that calculate compound interest at frequencies higher than yearly, as many do.
Even Australians with a smaller balance can rack up significantly greater earnings by switching. Canstar’s analysis shows $10,000 would earn $367 more in a year by moving from the lowest rate to the highest.
For your consideration
So, if you’re one of the lucky Australians to have savings in the bank, some research could deliver even more. A quick comparison of your current savings account’s interest rate with others is a starting point.
A little bit of research could pay off in spades – and with interest!
Have you considered the other side of the rate rise equation? Do you have a savings account that could benefit from a switch? Let us know via the comments section below.
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.