Millions of Australian home owners are being squeezed as the Reserve Bank hikes interest rates, but there’s a silver lining on the table for those willing to do some research.
Deposit savings rates, which have been nailed to the floor during COVID, are finally rising across most banks, creating an opportunity for Australians to earn more from their savings.
But those looking to maximise returns will need to shop around and check up on the market frequently, because rates are shifting rapidly and the best offers come with some conditions.
Steve Mickenbecker, a financial expert with Canstar, said savings rates across the market have risen, on average, 2.4 per cent since the RBA began its record-breaking rate hikes back in May.
That’s lower than the magnitude of RBA rate increases, but more changes are expected in 2023 as banks get more desperate for cash while the economy continues to slow down.
“Retail deposits will become gold for banks,” Mr Mickenbecker said.
“If you’re going to maximise your savings accounts you have to move them [regularly].”
Savings rate offers: The current landscape
As the table below shows, savings accounts are rapidly becoming more valuable for people with interest rates rising. But the best deals in the market generally come with conditions.
For example, the best rate at the moment is 4.75 per cent from the Bank of Queensland, although you will need to deposit at least $1000 a month and make five separate transactions.
You also need to be aged between 14 and 35, which isn’t a condition that most people can meet.
“These accounts have bonus rates that are substantial, to qualify you have to meet bonus conditions every month – some of them are onerous,” Mr Mickenbecker said.
Other accounts with competitive savings rates are only introductory offers, meaning the best returns expire after a few months and require you to switch to another bank’s deal.
What to consider before switching
Before making the switch to a higher savings rate, there are some things you’ll want to consider first, according to Chris Giaouris, partner and principal financial advisor at Chronos Private.
Mr Giaouris said savers should be checking back on their rates often at the moment because banks will continually increase their rates over the period ahead as the economy slows down.
“It’s one of those tasks that often people don’t really want to do or gets forgotten about,” he said.
“But it’s absolutely worth doing.”
Mr Giaouris said hidden fees, the accessibility of savings and a realistic assessment of whether you’ll be able to regularly meet bonus conditions are all important factors to take into account.
Importantly, he said savers will want to think about whether they will realistically be able to meet bonus conditions like savings thresholds, and consider whether unforeseen events could force you to draw down on your savings, compromising your interest rate.
It can even be useful to split your savings across different banks, and not just because that makes it easier to keep one portion of your savings off limits.
“Accessibility is really important,” Mr Giaouris said, “for some people it actually works better for them to have savings with different banks because it makes it harder to access, from a discipline standpoint there’s some benefit there.”
