Savings rates hit 4 per cent,but millions caught in ‘woeful’ accounts

Senior economics writer

One,two,three,four:I call a savings rate war!

After years of being paid diddly squat for their money in the bank,it’s time for Aussie savers to get active again in shopping around for the best place to park your cash.

John Shakespeare

I’ll get to the good deals below (as high as 4 per cent for some) but first,I want you to get angry.

Know this:if you don’t take action,the strategy of our big banks is – put into technical terms – to rip you off blind.

While the big-four banks are offering higher “bonus” savings interest rates,the rate on their “basic” online saver accounts are paying a paltry 0.6 per cent to 0.85 per cent – well below the Reserve Bank’s cash rate of 2.35 per cent.

“The numbers of customers on these truly woeful rates is significant,” says RateCity’s head of research Sally Tindall. For example,about two million Commonwealth Bank customers with their money in a NetBank Saver account are earning just 0.85 per cent on their money,while customers on its Goal Saver account are getting 2.1 per cent.

‘Banks are picking and choosing which customers get a rate hike and which miss out,in the hope complacent savers will protect profit margins.’

RateCity’s head of research Sally Tindall

Similarly,ANZ is paying customers of its Online Saver account a paltry 0.6 per cent (the lowest saving rate of the big four). But customers of its ANZ Plus Save account are getting 3 per cent. However,just 40,000 ANZ customers are in this Plus account,whereas a further 2.1 million are on another Reward Saver account paying 2.25 per cent (better than the Online Saver but still short-changed compared to ANZ’s best offering).

“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,” Tindall says.

“Banks are picking and choosing which customers get a rate hike and which miss out,in the hope that complacent savers will help protect their profit margins. They’re waiting to see what they can get away with.”

Smaller lenders are also having a laugh (again,technical term),with 11 smaller banks on RateCity’s database offering at least one ongoing savings account rate under 0.6 per cent for balances of $10,000.

For example,Australian Unity’s Easy Saver account offers 2.9 per cent for four months,but reverts to an ongoing rate of just 0.01 per cent. Ouch. Similarly,Newcastle Permanent’s Online Savings account starts at 2.5 per cent before dropping to 0.35 per cent after three months.

To avoid such traps,Tindall says it’s important to understand that banks generally offer two types of savings accounts.

The first,known simply as “online saver” accounts,often come with a high introductory rate before reverting to a lower ongoing rate,but come with few conditions. Another example is Macquarie Bank’s 3.7 per cent “welcome rate”,which is one of the highest in the market,but only lasts for four months before reverting to a maximum of 2.75 per cent for balances under $250,000.

The other type of saving account is known as a “bonus saver” account. Basically,you get access to a high ongoing rate,but only if you meet various conditions,such as making a certain number of deposits or withdrawals each month.

ING and Virgin are both market leaders for bonus saver accounts,offering an ongoing interest rate of 3.6 per cent,provided you meet the criteria.

For Virgin’s Boost Saver,you must deposit $2000 and make five purchases a month,plus engage a “lock feature” where you must provide 32 days’ notice to withdraw your money.

On ING’s Savings Maximiser,you must deposit $1000 and make five eligible payments on the account each month,plus make sure your balance is higher at the end of each month to be eligible for the high rate.

So,what’s the best online savings account?

That,unfortunately,will depend on your individual circumstances and ability to meet various bonus conditions.

However,the Bank of Queensland raised the bar this week by offering the highest savings rate on the market of 4 per cent. We’re starting to talk real money here. However,the rate is reserved for people aged 14-35 with balances less than $50,000. You also have to deposit $1000 each month and complete five eligible transactions (although these conditions are waived for customers aged 14-17).

In the young adult category,Westpac is offering a Spend&Save account for Aussies aged 18-29 which pays 3.5 per cent on balances up to $30,000,provided you use its debit card five times a monthand grow your savings each month.

For the more mature among us,there are the ING and Virgin offerings above. BoQ is also offering a relatively high return of 3.35 per cent on its Smart Saver product,which applies to balances up to $250,000 provided you meet the same criteria of depositing $1000 a month and five eligible transactions.

UBank is also offering 3.35 per cent on balances up to $250,000 with the condition that you deposit $200 a month.

Of course,one of the best savings strategies if you have a variable-rate mortgage is to park your cash in a mortgage offset account to reduce home loan interest paid.

However,for younger savers still accumulating their home deposit and older outright homeowners with cash in the bank,it’s time to start shopping around for a better return on your hard-earned.

Jessica Irvine is co-host of the new podcastIt All Adds Up and author of the bookMoney with Jess:Your Ultimate Guide to Household Budgeting. You can follow more of Jess’ money adventures on Instagram@moneywithjess andsign up to receive her weekly email newsletter.

Jessica Irvine is a senior economics writer with The Sydney Morning Herald and The Age.

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