It’s been a sad cycle for savers over the past nine months, with three cash rate cuts by the Reserve Bank in Australia steadily eroding the rates paid on savings accounts and term deposits.
The most recent cut, by 25 basis points to an all-time low of 0.5 per cent, made last week by the central bank as Australia fought the economic headwinds brought by coronavirus, has seen several big banks cut their deposit rates, with more expected to follow in the coming weeks. But there is some hope for savers, because the neo-banks are mostly maintaining their higher rates so far.
Here’s a wrap-up of which accounts felt the cut and which remain unscathed – so far …
CBA has typically been the first of the Big Four to cut savings account rates on the back of cash rate cuts, and Australia’s biggest bank cut interest rates on certain savings accounts by up to 0.3 per cent as a result of last week’s RBA cut.
Both the Pensioner Security and the Goal Saver accounts were cut by 0.25 per cent, with the Goal Saver now sitting at 0.65 per cent for balances under $50,000. The Pensioner Security account is at 0.01 per cent for balances under $50,000 and 0.5 per cent for balances under $250,000.
In January, NAB made the second cut in three months to its savings accounts, leaving the maximum rates at 1.55 per cent for the iSaver and 1.5 per cent for the Reward Saver.
RateCity CEO Paul Marshall called the decision “disappointing” at the time, adding it would be a bitter pill to swallow for dedicated savers. The prediction at the time was that if RBA were to cut the cash rate again, NAB might hold off cutting its savings rates by as much as the other Big Four banks, given its previous reductions.
However, this week NAB announced a 0.25 per cent drop to the iSaver account intro rate, and a 0.06 per cent drop to the ongoing rate, bringing the base interest to 0.05 per cent with a 1.3 per cent intro rate for four months. The bank also dropped the NAB Reward Saver max rate to 1.25 per cent, as well as the base rate to 0.05 per cent.
ANZ had already reduced base rate of its Online Saver account from 0.1 per cent to 0.05 per cent but retained with the three-month introductory rate of 1.5 per cent. However, despite already offering the lowest interest rates of the Big Four, ANZ this week announced additional cuts to both of those savings accounts.
The Online Saver account maintained its ongoing rate of 0.05 per cent but dropped the intro rate to 1.2 per cent. The Progress Saver also kept the base rate of 0.01 per cent, with the max rate dropping to 1.25 per cent.
February saw Westpac cut both its introductory and bonus rates for two of its savings accounts: the eSaver and the Westpac Life account. It made further cuts on Friday when Westpac became the last of the Big Four to drop rates in response to the RBA cash rate cut.
Both the eSaver and the Westpac Life savings accounts saw a drop of 0.05 per cent in the ongoing and base rates, as well as a 0.25 per cent drop in the max rates, bringing both rates to 1.3 per cent.
RateCity Research Director Sally Tindall said the cuts were inevitable as the banks attempted to recoup some of the costs of passing on the full 0.25 per cent cut to their home loan customers.
“It’s a grim outlook for Australian savers, many of whom are now earning just 0.05 per cent interest on their cash,” she said. “While there are still a handful of savings rates still offering rates above inflation, the chances of them sticking around are low, especially with another cash rate cut likely.”
While all of the big banks made cuts at some point throughout the past few months, neo-banks have been doing their utmost to prove themselves against the traditional banking system. Each bank has taken a different approach to the most recent rate cut.
Known as Australia’s first smartbank, 86 400 previously held the interest rate of 2.25 per cent on savings accounts. However, following the reduced home loan rate by 0.25 per cent, the bank also dropped the savings rate to 2 per cent per annum last Friday.
CEO Robert Bell told Starts at 60 that the bank was committed to giving customers the best possible rate in light of recent movements from the RBA. He also mentioned that the rates are always under review and despite the cut, they still remain at a competitive standard.
“While we know interest rate cuts aren’t good news for savers, we built 86 400 to be a genuine, lasting alternative to the Big Four,” he said. “To get there, we need to have a responsible, sustainable business model that enables us to operate in a low interest environment — that’s why we’ve focused on both sides of the ledger (deposits and lending) from day one.”
The newly formed neo-bank announced this month that in its seven short weeks of being open to the public, the Stash savings account had accumulated more than $300 million worth of deposits. That’s helped Xinja, whose system is entirely based on being mobile-friendly, maintain a market-leading interest rate.
CEO Eric Wilson sent a statement to members last week that said that rather than cutting interest rates, Xinja decided to maintain support its current customers by not opening any new savings accounts so it could maintain the 2.25 per cent interest rate.
“No more new Stash accounts means less increase in cost to Xinja, and means we can keep our existing Stash customers (you) at a great interest rate,” Wilson wrote. “We look forward to opening up Stash again to other customers (and any of your friends that want one) in a couple of months.”
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