Cash returns fall to zero as RBA slashes interest rates

It’s only going to get worse for Aussie savers already on their knees after the Reserve Bank’s decision to cut interest rates.

Aussie savers already going backwards will fall further behind following the Reserve Bank’s move to cut rates.

Vado Private founder Simon Arraj said those relying on cash were falling behind due to the difference between cash rates offered by banks and Australia’s inflation rate.

“With interest rates on online savings accounts typically yielding less than 2 per cent, that exposes many savers to returns less than zero,” Mr Arraj said.

RBA data shows online savings accounts were giving customers on average just 1.75 per cent interest in January 2025, down from more than 2 per cent a year ago.

“Savings rates could fall further this year after the February rate cut,” Mr Arraj said.

Saving rates are falling below inflation and those holding cash are going backwards. Picture: NewsWire / Nicholas Eagar

While good for those with a mortgage, the interest-rate cut adds to savers’ woes.

Australia’s consumer price index was at 2.4 per cent as of December 31.

This means Aussie savers need to be getting more than a 2.4 per cent interest rate otherwise they are going backwards in real terms.

The RBA cut rates by 25 basis points from 4.35 per cent to 4.10 per cent on Tuesday.

This was the first move on rates in either direction since November 2023 and the first move downwards since the depths of the Covid pandemic in late 2020.

RBA governor Michele Bullock said even though the rate-cutting cycle had started, it might be several months until Aussies receive a second cut. Picture: NewsWire / John Appleyard

Despite Tuesday’s cut, RBA governor Michele Bullock told mortgage holders to “be patient”, as the board was unlikely to offer back-to-back rate cuts.

Ms Bullock issued the stark warning following a question from NewsWire. She acknowledged she had received letters from struggling homeowners suffering through an extended period of crippling interest-rate rises.

“I understand you are hurting, and I understand mortgage rates have increased a lot … but we need to get inflation down because that is the other thing that is really hurting you,” she said.

“If we don’t get inflation down, interest rates won’t come down, and you’ll be stuck with inflation and high interest rates.

“So, we have to be patient. I understand it hurts, but it’s really important that we get inflation down.”

Mr Arraj said savers could find some refuge in term deposits, although even these rates were falling.

“Bank one-year term deposit rates averaged a little more at 3.35 per cent per annum, well below around 4 per cent a year earlier, so the real return on such deposits is less than 1 per cent. Investors would be wise to reassess high allocations to cash,” Mr Arraj said.

Canstar data insights director Sally Tindall said rate cuts were good for some but bad for others.

“Cash rate cuts are always a double-edged sword and unfortunately today’s news will be a bitter pill for anyone with savings in the bank,” she said of the RBA’s decision.

Originally published as Cash returns fall to zero as RBA slashes interest rates