But with rising rates, is relief in sight?
The cash rate has remained at its emergency level of 0.10% for nearly 18 months, with many savings accounts paying just 0.05% interest.
This pales in comparison to savings rates in 2008, when they peaked at 7.3% in August 2008, just before the global financial crisis.
At the time, “online savers” were the highest paying savings accounts as banks tried to lure people into online banking.
Now, Goal Saver accounts attract the highest rates.
Since February 1, 2020, when the COVID-19 pandemic began, Commonwealth Bank (CBA) has cut the rate on its bonus savings accounts 12 times.
Meanwhile, Westpac and ANZ both cut the rate 10 times and NAB nine times.
The average bonus savings rate of the big four banks has fallen by 1.27% since the pandemic reached an average rate of just 0.23%.
|Maximum rate February 2020||Maximum rate now||Difference (% points)|
RateCity research director Sally Tindall said if the cash rate rises to 1.25% by February next year, as the ABC economics team predicts, savers could see a much needed increase in the interest they earn.
However, banks are unlikely to pass on the full increases to their savings customers.
“Banks are jam-packed with cash after Australians put away their wallets and saved record sums during the pandemic,” Ms Tindall said.
“And a lot of banks won’t want to go overboard for fear of attracting more customers.
“It’s the irony of Australia’s record saving spree. The more money we accumulate, the more banks will be reluctant to pass on rate hikes in full.”
The latest data from APRA showed that Australian households have a total of $1.24 trillion in the bank, an increase of almost $250 billion since the start of COVID-19.
It’s been particularly grim for self-funded retirees and those saving for a home deposit.
Currently, 11 banks offer continuous savings rates of 1% or more.
ING has the highest ongoing rate for all adults at 1.35%.
Westpac offers a better deal for 18-29 year olds at 2%, while Bank of Queensland also offers 2% for 14-35 year olds.
These accounts all have terms and conditions.
Ms Tindall said ING has been a consistent player over the years.
Virgin and 86,400 are not far behind with a maximum rate of 1.20%.
Keeping your money in the bank is federally guaranteed for balances up to $250,000 per account, so it’s risk-free if you’re under the cap.
But if you don’t want to keep your money in the bank, there are other alternatives outlined by RateCity.
- Invest in your future with super. Boost your super by making additional refunds. Even a small amount adds up over time through the magic of compound interest. Also, if you make these contributions through your employer, the money is usually taxed at a lower rate.
- Invest in the stock market. The market tends to go wild, but if you do your research, strategize, diversify your risk, and keep a cool head, you could potentially find yourself ahead in the longer term.
- Loan between individuals. Peer-to-peer lenders allow you to invest money, which they then lend to people looking for a loan, who then pay you interest while they pay the money back. It generally offers higher returns than savings accounts, but it does come with some risk.
- Invest in your home loan through additional repayments. Rate hikes are coming and now is the perfect time to inject a buffer into your home loan if you have one.
- Invest in your home through renovations.
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