How to make your savings work for you in a low-rate climate

Australia’s interest-rate environment over the last decade has been great for borrowers, but increasingly more challenging for savers – particularly those who prefer to hold substantial portions of their savings in low-risk savings options like savings accounts and term deposits.                                         

The last time the Reserve Bank of Australia raised the official cash rate was in November 2010. Since then, the cash rate declined steadily, before hitting a record low of 1.50 per cent in August 2016.

Just because interest rates are low, doesn’t mean you can’t explore your options and make your savings vehicles work harder for you.

Here are six steps you can take to maximise your savings in 2018.

Look at your investing timeframe

Decide whether you need easy access to your cash or are happy to tie it up for a while.

If you need to be able to withdraw your cash in an emergency, it’s best to opt for a savings account, like St. George Bank’s Incentive Saver or Maxi Saver accounts.

This type of account will give you a higher interest rate than your everyday transaction account, and you’ll still have access your money when you need it. Some savings accounts reward you with bonus interest if you do not make a withdrawal each month.

Most banks these days make it easy to open new savings accounts online with as little as a drivers’ licence and tax file number. It’s worth checking out the online options that will make life easier for you.

Check your account’s current fees and penalties

Review your current savings accounts for account-keeping fees, as they can eat away the return on your savings. It’s worth negotiating with your existing bank to see if they can do a better deal for you on fees.

And remember, the interest rate you receive might be reduced if you make withdrawals. Check the terms and conditions on your bank’s website, so you’re aware of any potential penalties associated with the account you’re using.

Be aware that introductory rates will revert to a base rate

Accounts that offer great introductory interest rates will change back to a less competitive base rate after three or six months. Make sure that you’re aware of the base rate and check that it’s competitive.

The other consideration with at-call savings accounts is that your return is not guaranteed, because the rate on offer can change in line with the Reserve Bank of Australia’s interest rate decisions.

Consider term deposits for a guaranteed return

If you want a more secure return, consider a term deposit like those offered by St. George Bank and other banks and credit unions. This option will require you to lock up your money for a fixed term, ranging from one month to five years.

In return, you’re guaranteed a specific interest rate, depending on how long your cash is locked-up for, and you typically won’t have to pay any setup or monthly fees.

As with any type of bank account, make sure you check what the withdrawal rules are. If you want to access your cash before the term is up, you may have to give notice and pay a penalty, or your rate may be reduced.

Most banks allow you to set up a term deposit online via Internet banking or, if you would prefer, you can still do this at your local branch.

Use an independent site to compare savings and deposit accounts

Independent comparison sites can help you to compare the rates, fees and features on savings accounts and term deposits.

Canstar is helpful for unbiased comparisons. The government’s MoneySmart website also provides helpful, objective advice about savings accounts and term deposits.

Speak with your bank about the options that would best suit you

Your bank is well-placed to give you advice on savings options for your specific needs.

Financial advisers can also provide useful guidance about your whole savings and investment portfolio (which may include at-call savings accounts, term deposits, superannuation, pensions, shares, investment bonds and other types of savings vehicles).

Despite the current low interest rate climate, it’s worth reviewing your options, so you can ride it out with confidence.

What savings options have worked for you over the years?