Two strategies to avoid zero-interest rate pain

The big tip for Melbourne Cup day is a big fat RBA rate cut, say experts.

boosting income

Retirees stung by ultra-low interest rates may soon be in for more pain, should the Reserve Bank of Australia cut rates further as it is tipped to do on Melbourne Cup day in November.

“Yep, the 0.25 per cent rate is expected to go to 0.1 per cent as the RBA’s boss, Dr Phil Lowe, looks at the struggles of Victoria and how it has affected our economic recovery, so he wants to add a bit more stimulus,” writes Peter Switzer.

“The Big Four banks’ economics teams have put their forecasting reputations on a Cup day cut and that’s often a good sign that the RBA has pretty well given them a nod and a wink.”

Some banks have already said they would pay zero interest to high-income earners.

Neobank Xinja was the first, saying it will no longer pay 1.5 per cent interest on deposits over $150,000.

UBS and Credit Suisse said they would not pay interest to wealthier clients during the pandemic.

But it’s not just the wealthy who will feel the pinch.

Australia’s Big Four banks have already cut their savings rates to meagre levels. While ANZ is still paying 0.65 per cent on its progress saver account, none of the other Big Four banks are paying anything above 0.05 per cent.

So, savers with $10,000 in an account could earn as little as $5 a year in interest.

The average ongoing savings rate is around 0.51 per cent, with most banks offering base rates just above zero.

“Banks get the most bang for buck by cutting their base rates rather than their bonus rates, however the issue is many base rates are just a fraction above zero, so there’s nothing left to cut,” RateCity research director Sally Tindall told

“While this low-rate environment is typically great news for homeowners, Australia has more savers than mortgage holders, and these customers are watching their interest rates whittle away.”

More recently, many disgruntled savers turned to neobanks for more competitive interest rates. Even after banks cut savings rates to below 1 per cent in June 2019, neobanks were paying between three and five per cent.

But even they can’t keep that up.

Xinja’s announcement that it would pay zero per cent on large deposits has savers rethinking their savings strategy.

Canstar group executive Steve Mickenbecker told The New Daily he would be unsurprised if other neobanks followed Xinja’s lead and paid zero interest on large deposits, but he doesn’t think major banks will do the same.

“It’s no surprise the big banks have stopped at 0.01 or 0.05 [per cent] for their base rates rather than going to zero, because zero is that kind of magical round number that says, ‘Oh, I’m getting nothing now’,” he said.

So, how can savers get more return for their savings now?

Mr Mickenbecker says there are two possible strategies.

One, is to get on the ‘introductory rate merry-go-round’, switching between providers every three or four months to capitalise on promotional rates

Or, they find a provider with a good bonus rate.

Most savings products charge no fees for setting up and switching accounts, so it could be a free ride of sorts.

“If a savings account works for you, be prepared to switch often, or be prepared to restrict your flexibility with terms on bonus rates,” said Mr Mickenbecker.

“With most banks these days, you can open your account and transfer your money online and it happens near-instantaneously, and you shouldn’t even lose a day’s interest.”

Currently, Rabobank has an account that pays two per cent interest over the first four months. Heritage Bank and the Bank of China have accounts that pay 1.6 per cent interest over the same period.

ME Bank’s online savings account pulls bonus interest of 1.45 per cent if customers take out an everyday transaction account and make four tap and go payments a month.

ING is paying 1.5 per cent interest on deposits up to $100,000 in its savings maximiser account, but only if you have a transaction account with ING, deposit at least $1000 or more per month and make at least five card purchases every month.

“When it comes to savings rates, ING, Bank of Queensland, ME Bank and MyState are some of the more consistent performers. However, in this market, it really does pay to check on the competitiveness of your rate at least every few months,” concluded Ms Tindall.

Have you considered jumping on the introductory rate merry-go-round? Or are you already doing it? Does it work?

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    To make a comment, please register or login
    19th Oct 2020
    In the home of Credit Suisse and UBS these institutions charge the customer 0.75% for deposits of 100'000 or more. My sister told me, she lives in Zurich. She now banks with someone else but the conditions are very similar there too. Imagine you having to pay for the bank to hold your money. The way things are going here we might get there yet.
    19th Oct 2020
    Going on the merry-go-round? Filling in all these forms for an extra $6 a year or less only to see yourself back where you started from 3 months later. Who's game for that?
    20th Oct 2020
    Filling out forms makes me think of Firast state bank in Tasmnaia. My wife and I went to open an account there whgen we moved fom Qld, and we were given 7 yes seven A4 sheets of questions and I.Ds proof details to fill in . We Just walked out, and tore them, up when we got home. We are still with BOQ and no problems.
    19th Oct 2020
    The biggest issue for many retirees who have a pension or part pension is the LNP government controlled deeming rate. Fixing the deeming rate to be equal to the RBA determined (sic!) cash rate would solve a lot of income issues for these retirees and qualify many more for a part pension. While this would be totally unpalatable to the LNP government it would be fair and equitable to retirees, most of whom are close to or below the poverty line. Over the last 2 years, after losing our part pension, we have also lost 25% of our retirement income due to falling investments and are considering spending some of our remaining savings to just stay afloat. How are you going? Perhaps a social media campaign against current LNP retirement practices is the answer?
    19th Oct 2020
    Agree with you Buggsie, however I do not necessarily think that the ALP would be any different in that regard. The deeming rate acts as a sort of asset tax common in other countries where not only income is assessed for tax purposes but also your net worth in the bank whether you get interest or not.
    The Sheriff
    19th Oct 2020
    Currently and for the next few years whatever the interest paid by the banks will be chicken feed. For income at this time the most beneficial and relatively safe investment is dividend returns from blue chip shares such as the big four Banks and Telstra, which just now are historically inexpensive. As the economy gets back on track after COVID significant capital gains are probable as well.
    19th Oct 2020
    Yes, it cheers me up knowing the Westpac shares purchased in 1998 are now worth less, and of course dividends have all dropped this year as banks and Telstra pay less
    19th Oct 2020
    Sundays - exactly, not the type of "safe investment" I like.
    19th Oct 2020
    Westpac are in more trouble

    According to the papers this morning
    Golden Oldie
    19th Oct 2020
    Extra stimulas by dropping to .01%? Who is kidding who. The LNP took over from a worldwide GFC recession at 3% cash rate and castigated Labor for its stimulate packages. Now already down to .25% to 'fix' the economy by stimulating it with decreases in the cash rate. BIG FAIL. Monetary policy and Trickle down economics have led to a depression before the Pandemic struck. LNP budget 2020 another fail in the making.
    19th Oct 2020
    Yep. We would be better off financially if Labor had won the last election. But imagine the screaming from the Libs if Labor had spent the money they have spent this year.
    It was supposedly a “budget emergency” and a “deficit disaster” when the economy was in way better shape than it is now.
    19th Oct 2020
    If you do chop and change your accounts, make sure you obtain and retain the interest information for tax purposes as you do it. Trying to get this information once the account and tax year has closed can be a real pain especially if you are no longer with that bank.
    19th Oct 2020
    Good point Viking. I changed the type of savings account I had with my bank and forgot about the interest already earned when I lodged my tax return. Two years later ATO wrote to me and issued a debt notice. They eventually pick these things up via data matching.
    19th Oct 2020
    One notes that credit card rates of interest are still astronomical. People are very silly if they go along with tap and go and cash ban.

    How long do these cash ban believers think banks will hold out not charging astronomical fees for the use of their ‘cash’ card?

    I am so over my money being used to make bankers wealthier and pensioners and mum and dads poorer.
    Hex on Turnbull for deliberately putting savings into the ‘bail in laws’.

    There is a vote coming up soon to try and protect savings from bail in. It’s still not to late to contact your local member and demand they pass this bill.
    19th Oct 2020
    May as well put it under the mattress
    19th Oct 2020
    Yeah, the bugs cannot eat it as it is plastic these days, same as those cash cards.
    19th Oct 2020
    Reading this article and many similar others, makes me simply say:
    'Thank heavens for Super'!
    19th Oct 2020
    ALL you SFR off to Crown you go for higher returns
    19th Oct 2020
    Nah!. Crown was a poor investment. Better to spend up and go to Centrelink. Reliable income every fortnight and of bonus benefits. Put any extra savings under the bed to around the ridiculous means tests and deeming rate.
    Then again, Crown could help us lose enough to qualify for a pension, so maybe it is a good idea.

    19th Oct 2020
    Best policy now seems to be spend your savings and claim as much pension as possible.

    Cutting interest rates hasn't stimulated economic growth before, so why should anything change now? Maybe raising them would work better?
    19th Oct 2020
    I jumped on the intro rate merry-go-round. From UBank, to Rabobank, to AMP and now back to UBank, which has the best ongoing rate at the moment. (1.45%)

    The annoying thing is that many banks limit daily transfers to $5,000 so it can take a chunk out of the intro period just transferring your money.
    19th Oct 2020
    You can usually apply to your bank for nominated accounts to have a much higher limit.
    20th Oct 2020
    Why aren’t the banks lowering credit card interest charges? Would certainly help people to pay off their debt.
    25th Oct 2020
    If you are able to, you could always reinvest into Super. Many balanced options are running around the 7-7.5% rates over the past 3 years for many Industry Super Funds. Then run it like a bank account. With ATO deeming rates at 2.25% you would end up ahead.

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