hi I'm Graham the insights manager at finder.com.au. Now, as you know the
RBA have cut the cash rate twice in a row. We've done a couple of videos on
how that affects the housing market which you can check the links below. This
video we'll look at how it affects savings and where the best place is to
have your money in this low-interest environment
So what happened? Well the or RBA has cut interest rates by 25 basis points two times in a row.
A basis point is basically 1/100th of a percent of a change in the rate, so this totals
half a percent. If you want to find that exactly why we use basis points you can
check out a link to the insights blog in the description below.
Why does this matter? Well the cash rate determines the cost to commercial banks of borrowing
money from the central bank and if they can access money cheaper they can then
lend it to consumers for less. So that means the home loan rates tend to go
down when the cash rate goes down but it also means that banks are less inclined
to hold deposits because they can access money cheaper. So they're less inclined
to pay more for you to have your savings in their vaults and therefore savings
account rates also go down.
So, how did this actually affect everyday Australians?
Well, our Consumer Sentiment Survey of three thousand Australians
shows most Aussies report having about $30,000 in their savings account and
adding about $650 to that every month
Now, if this is you and you have the highest rate savings accounts on the market that's
2.6 percent, you'll earn about two grand in interest over two years.
Now if your bank passed on the full 50 basis point cut and your rate reduced to 2.1, this would
lose you about four hundred dollars in interest over the same two year period
so it's a significant drop. It's not huge but you can imagine if you're a retiree
or you're trying to save for a home and you've got more than that in savings
it's gonna have quite a big impact.
So how can you make the most of your savings in this low interest world?
Well even though rates are low, there's still better value to be had with some accounts rather than others
The way I'llexplain this is by dividing the savings
market into three different types of products. So the first type of account on
the market is basic online savings accounts these are the old fashioned
accounts, so you put money in and you get an interest rate most banks will offer a
bonus rate for a set period of time but after three or four months that drops
low very low RBA data shows the average interest rate
for these accounts is only 0.6% which is almost nothing. So the second type of
account is what I'm calling a withdrawal restricted bonus savings
account. Now these offer better interest as long as you deposit money
into the savings account every month and generally do not make a withdrawal or at
least don't withdraw as much as you put in so you need to keep increasing your
savings. These offer on average one point nine five percent according to RBA
data and have actually become better value over recent years if you look at
the same graph for these accounts. So what's the final type of product? Well
the final type of product is my favorite type of savings account I'm calling
these non-withdrawal restricted bonus savings accounts. Now that's quite a
mouthful but it's necessary to describe what these are doing these are similar
to the bonus accounts we talked about before with the big banks but these tend
to offer a bonus rate if you do your everyday banking with the bank rather
than if you don't withdraw your saving so you get your wages put into a current
account you make a few debit purchases
and you get this ongoing bonus right
now the thing here is that the rate tends to be higher
so this is the place where you get the best value for your savings and also your savings and not
locked in you can take them out whenever you want. You can find more information
about the current rates for these banks and other high interest savings accounts
via the links below.