Some accounts still pay 3.25 per cent on your savings

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This week’s decision by the Reserve Bank of Australia (RBA) to hold its cash rate at 1.5 per cent has again underscored the reality that most savings accounts today are not paying enough interest to grow your wealth.

But there are a handful of deeming accounts that still pay 3.25 per cent interest on large deposits. Comparison site Canstar lists them, including details of conditions you have to meet to earn what is known as the deeming rate. This rate is what the Government assumes you are earning in interest on your savings in order for it to calculate Centrelink entitlements.

To be called a deeming account, Canstar says the financial institutions offering them are  legally bound to pay interest at the legislated deeming rate. This rate is actually two different components. The first component of 1.75 per cent applies to:

  • The first $50,200 of a single customer’s total financial investments, or
  •  The first $83,400 of a pensioner couple’s total financial investments, or
  •  $41,700 of total financial investments for each member of an allowee couple.

A deeming rate of 3.25 per cent applies to savings above these amounts.

Canstar Group Executive Financial Services Steve Mickenbecker told YourLifeChoices there are six deeming accounts being offered by small providers.

“Let’s say you have $200,000. In a deeming account, you would get an average 3.1 per cent, once you take into account the different rates for the first and second portion of the balance,” Mr Mickenbecker said.

“In some ways, if you have a largish nest egg, these accounts can be more convenient than savings in a term deposit because you don’t have to wait to make a withdrawal if you need to access your cash immediately,” he said.

Most other savings accounts marketed at retirees do not pay the equivalent of the Federal Government’s deeming rates, shelling out less than 2 per cent.

Mr Mickenbecker said that retirees who do not have a large deposit and are not likely to be making withdrawals every month should shop around for better interest rates. 

Canstar lists a number of ‘regular saver’ accounts that pay above 2.8 per cent ‘bonus’ interest. However, the bonus rates do come with conditions, Mr Mickenbecker said.

Those conditions can include not making withdrawals, not linking accounts, and providing no access to online banking, branches or ATMs.

When considering switching savings accounts, it’s wise to look beyond the advertised interest rates. Ask the bank to send you full details of how the account operates, what its limits are, whether it charges monthly, and to list the transaction fees or other costs that could chip away at your nest egg.

What type of savings account works best for you? When was the last time your bank increased interest rate on your savings? Do you remember the highest interest rate you ever received for a savings account?

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RELATED LINKS

‘Deeming’ accounts to disappear

ASIC forces banks to come clean on deeming accounts

Is Centrelink checking your bank account?

Does Centrelink have the power to check your bank account?

Savers losing money as tax and inflation overtake interest rates

Interest earned on savings accounts too low to keep up with inflation.

Written by Olga Galacho

7 Comments

Total Comments: 7
  1. 0
    0

    Open an eaccount as it pays far more interest than a normal savings account. Not all elderly people have $50,000 or $200,000 in savings. Some of us just have a bit we manage to save from our pension but it is still worth getting some interest. If you get your pension paid into an eaccount it will attract a decent amount of interest over the month. CUA will give you some interest on an eaccount if you have your pension paid into it. A normal account is a few cents but an eaccount is dollars. Everything helps!

  2. 0
    0

    I get a slightly higher rate than advertised on my savings account which has a lot less than $200k. However, it only lasts for 2-3 months and then I have to go back to the bank and ask again. They always make out they are doing me a big favour. Quite demeaning for less than 3% interest. I should change banks but suspect they are all the same!

  3. 0
    0

    I currently get 2.87% pa at call with UBank. Unlike many other high interest accounts where you have to have at least $20k, $50K etc before you get the higher rate, I earn 2.87% from the first dollar. There are no fees.

  4. 0
    0

    I try to keep as little in a saving account as I can. There are better places to put it.

  5. 0
    0

    Misleading article! Canstar’s comparison site uses interest rates more than a month out of date. Interest rates, deeming account rates are much lower than they suggest.

  6. 0
    0

    The 3.25% you mention dropped to 3% at the beginning of the year as far as I am aware, in fact it may have been last year that it dropped, if anyone knows where you can get 3.25% no strings attached in a deeming account I would be interested to know which bank.

  7. 0
    0

    Whats an eaccount ??


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