Savers losing money as tax and inflation overtake interest rates

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According to money-saving website, the interest earned from savings accounts is now too low to keep savers ahead of rising rates of inflation and tax.

The comparison site has calculated that the average interest needed to be earned to stay ahead of inflation would be at least 3.11 per cent. However, the highest interest savings account on the market has been clocked at just 3.05 per cent.

So, how do savers stay ahead of inflation? Well, there are a small number of term deposit accounts that offer interest rates of around 3.4 per cent, but you’ll have to lock your money away for two to three years in order to benefit from these rates.

Good news for those who can afford to stash their cash away for a few years, but bad news for age pensioners who rely on money earned from interest to get by.

Mozo’s report has revealed that, since the start of the year, interest rates have been reduced on 35 savings accounts, while at the same time, inflation has increased from 1.5 per cent to 2.1 per cent.

“Since the beginning of 2017 we’ve seen base interest rates cut on seven savings accounts by 0.14 per cent on average, while ongoing bonus interest rates have been hacked on 17 accounts by 0.12 per cent. As a result, savers would be losing money after inflation and tax eat away at their balance,” says Mozo Director Kirsty Lamont.

“The picture for savers is becoming more and more bleak, with the nation’s savings being eaten away by tumbling interest rates and rising inflation.

“Savers could be forgiven for thinking they might as well just stuff their cash under their mattress, but the better strategy is to move your money into a top paying savings account or term deposit so that your savings are in the best position to ride out the current trough and recover.

“For those who can afford to stash their cash away for two or more years, there’s a handful of term deposit accounts with inflation-beating rates, with the best rate currently 3.4 per cent on a three-year term.”

Term deposit rates above 3.11 per cent


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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 16
  1. 0

    Rams is 3% deposit $200 a month, no withdrawal.

    • 0

      Maybe but you have to pay tax on your ‘income’ whilst your money is depreciating. For some the pension is also lost or heavily reduced whilst the loss of spending power of money is never accounted for.
      The casino mostly wins.

    • 0

      Yes, its a no win which ever way you go. (under the mattress might be the best option)

  2. 0

    With the deeming rate at 3.25% and the interest rate well below that pensioners are actually losing money. Plus the asset test you lose $3 for every $1000 every fortnight. That means you can save all year and have less than when you started, plus the cost of an article you might want to buy has gone up in price.

    • 0

      That’s exactly right. But a private deeming account won’t give you 3.25% – that’s just for pensioners.

    • 0

      Rosret, Even pensioners can’t get 3.25% No one can.

    • 0

      Rosret, I think that you may be misunderstanding deeming rate. The deeming rate is the rate that your cash assets are deemed (assumed) to have earned when applying the income test to calculate an aged pension.

    • 0

      Sceptic banks used to offer a deeming account for retirees that was offered at the CPI. However somewhere along the line the deeming account changed its name (with my bank anyway) and the interest rates went down way way down.
      …and yes – I am perplexed about the deeming rates and deeming accounts.

    • 0

      Yes Nanna, I have emailed/rung and written to Chris Porter about this ridiculous deeming and not once have I ever had a reply — and his office personnel are as ignorant as he is — maybe if more demanded this to be lowered something would be done — it is causing many to loose a lot of pensions — because they are deemed to be getting a lot more than they are

  3. 0

    Its not just the low interest savings accounts. The housing market has made $1m seem like some trivial amount. Its as though money have no real value any more – like living in a banana republic.

    • 0

      Well $1m isn’t THAT much anymore. Take the cost of a house , some nice furniture a decent car, and a bit of money in the bank and your million has gone.

    • 0

      Yes and even homes in the very outer suburbs are now said to be worth a Million or more, I remember the times when a home was built for about 3 or 4 Thousand — sometimes LESS

  4. 0

    Another twist on this story is that self funded retirees who have a rental house instead of superannuation are also being hit by the rise in house prices.
    Those who need a part pension to help make ends meet are having that part pension reduced because houses have again been revalued by Centrelink and it (Centrelink) is assuming that the retirees are receiving that extra amount as rental.
    Of course they are not so their income has dropped dramatically and any savings they have for a rainy day are going backwards.

    • 0

      We seniors are in a no win situation whatever we do, thanks to this government which is squeezing us for every dollar. At the same we see CEO’s and the like, getting increasing obscene amounts of pay. I fear the general population is becoming cheap labour (slave) for the high-class rich.

    • 0

      It certainly is that way Nan Norma.
      And it is becoming too expensive to take a break and eat out for lunch occasionally.

  5. 0

    With a deeming rate of 3.25%, and talk of including the family home in the Assets Test, there is absolutely no incentive for people to plan for a self funded retirement. No wonder more and more young people I talk to are not putting extra into their Super and are not considering buying a house of their own.
    Australia the land of the mediocre.
    At least make the Deeming Rate flexible so that it can be tied to the medial rate obtainable in the market. This government can find ways of giving Big Business tax cuts, why can’t it seem to find a way of making Deeming Rates fair?



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