Retirees and first-home buyers have been dealt another financial blow after Commonwealth Bank took a knife to its savings rates on Wednesday.
CBA became the latest of 24 banks to cut deposit rates over the past month when it trimmed rates by up to 0.05 percentage points.
The cuts are part of a years-long trend towards ultra-low interest rates as central banks around the world try to stimulate their economies.
But another factor is also at play.
Lockdowns encouraged Australians to squirrel away an extra $204 billion since the start of the pandemic, so banks are looking to cut deposit rates to reduce what has become a much larger interest bill.
The latest statistics from financial regulator APRA show Australian households currently have $1.17 trillion sitting in their bank accounts.
RateCity research director Sally Tindall said “paying a decent amount of interest on those record levels of deposits is costly for the bank”.
Ms Tindall said the latest cuts would mostly affect young Australians preparing for big purchases (such as a first home) and retirees dependent on savings: “Anyone that’s really focused on saving and growing their nest egg.”
But rates are already so close to zero that most savers will feel no “tangible impact”, according to Chronos Private financial adviser Chris Giaouris.
He said customers had been “groomed” by banks to accept low interest rates for years.
Time to shop around
So what’s to be done about it?
Ms Tindall said savers should refuse to accept such “paltry” rates.
“Go and take your savings account shopping, because there are still 12 banks out there offering ongoing savings rates of 1 per cent or more,” she said.
RateCity data shows ING has the highest ongoing savings account interest rate at 1.35 per cent.
Younger people can also enjoy a “jaw-dropping” 2.5 per cent interest rate on savings from Westpac and Bank of Queensland, Ms Tindall said.
Bonus saving tips
- Cut out non-essential spending: Mr Giaouris said this tip was obvious, but might not be easy. He said where possible, people should reduce their spending if they are facing lower returns due to cuts to savings rates
- Look at the fine print: Ms Tindall said savers should ensure they are eligible for bonus interest rates that might attract them to a particular savings account. She said some savings accounts might have some extra conditions to receive extra interest, such as making fewer withdrawals or a certain amount of monthly deposits
- Consider alternative investments: Depending on your savings goals and time frame, a savings goal might not suit your needs, Mr Giaouris said. He said options such as investing in the sharemarket carry more risk, but could yield better returns.