Banks are quick to pass on interest rate rises to mortgage holders, but they’re less keen on increasing rates for savings accounts. Here’s how to find the best savings rates for your money.
The announcement earlier this month of yet another Reserve Bank of Australia (RBA) interest rate rise was very quickly followed by the banks announcing an associated lift in monthly mortgage payments.
But the banks usually take much longer to pass on rate rises to savings accounts – if they pass them on at all. And even then, banks often lift savings rates for some accounts but not all.
If this sounds like your bank, you might want to think about looking around for a better deal. In fact, it’s likely the only way you’re going to get a better rate, as the major banks rely on customers’ complacency.
What to look for
Sally Tindall, research director for RateCity, told the Herald Sun your savings rate should be higher than the RBA cash rate, which is currently 2.35 per cent.
That may come as a shock to many, as the average savings rate across Big Four bank accounts is currently sitting under 1 per cent.
“A good rate will be above 3 per cent. A cracking rate is over 3.5 per cent,” she says.
“It is crazy to think that millions of customers are on rates that are almost one-third of the cash rate, when people should be on rates well above this mark.”
The highest rate available at the moment is the 4 per cent that the Bank of Queensland is offering on its Future Saver accounts. Other standouts are Rabobank, ING and Virgin Money, which are all offering 3.6 per cent.
Compare those rates with what’s being offered by the Big Four on standard online saver accounts: 0.85 per cent at the Commonwealth Bank of Australia (CBA), 0.6 per cent at ANZ, 0.85 per cent at Westpac and 0.85 per cent for NAB’s basic account.
You don’t even necessarily need to move banks, often just to another account type with your existing banks. Again, banks profit greatly from customers not paying attention and moving themselves to a better rate.
Ms Tindall says if your bank hasn’t lifted your savings rate, make them explain why.
“CBA’s Online Saver has an ongoing rate of 0.85 per cent, yet another of its accounts is paying 3.6 per cent,” she says.
“ANZ has an Online Saver paying 0.6 per cent, yet its new ANZ+ account is paying 2.7 per cent.
“That is appalling.”
Beware bonus rates
Pay attention to the fine print when shopping around for a new savings rate, as many financial institutions offer higher introductory interest rates (also known as honeymoon rates) that will revert to a much lower rate after a few months.
For example, Australian Unity is offering a 2.9 per cent rate on its Easy Saver accounts, but only for the first four months. After that, it reverts to a shockingly low 0.01 per cent.
You can find great deals using introductory interest rates, but you need to be mindful of switching your money out when the initial rate expires.
Are you happy with the savings rate you’re getting from your bank? Would you consider switching? Let us know in the comments section below.