RBA retains cash rate at historic low as retirees struggle to generate returns

The RBA has kept the official interest rate at a historic low as older Australians who are keeping money in the bank struggle to generate returns.

Older Australians with money in the bank are being savaged by dismal interest rates — some as low as 0.1 per cent.

The Reserve Bank of Australia today kept the cash rate on hold at 0.1 per cent, as data was released showing interest rates for pensioner accounts were barely delivering any returns.

These accounts are usually for people 55 and over and are designed to earn interest when the customer – an eligible pensioner or self-funded retiree – deposits money into them.

Data from financial services firm Mozo showed the average pensioner savings account rate is just 0.59 per cent, while deals from the big four banks on these accounts are much lower ranging from just 0.25 to 0.35 per cent.

AMP chief economist Dr Shane Oliver said it has “never been this tough” for older savers and some will be getting no interest at all for keeping their money parked in the bank.

“Some people might even be getting zero per cent and there’s no return there,” he said.

“If possible it might be worth switching to a term deposit or talking to your bank.

“It does involve locking in a sum of money for a period to get that higher rate but it’s one option if an individual or couple can work out how much they might need over a period and keep the rest locked away.”

AMP Dr Shane Oliver said savers should review the savings rates they are on to see if they can score a better deal elsewhere.

Mozo’s database shows the top 12-month term deposit rate is with BankVic at 1.05 per cent.

RBA governor Dr Phillip Lowe said he expected the cash rate to remain low until at least 2024 which is great news for mortgage customers but the opposite for those relying on savings returns.

Mozo’s spokesman Peter Marshall said savers including older Australians could no longer rely on getting a decent interest rate.

“You either have to look for a different form of investment and pursue one of those riskier options such as shares so that you have some hope of getting a better return,” he said.

“You may also have to look at other accounts that aren't marketed as pensioner or retirement savings accounts and look at other online savings accounts where you might be able to meet the conditions that get better rates.”

The deeming rate – the amount the government deems a pensioner’s income to be from their financial assets is 2.25 per cent – but many are getting virtually no returns on their cash in the bank.

Dr Oliver said it should be reviewed.

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TOP 12-MONTH TERM DEPOSITS

BANK INTEREST RATE BALANCE AFTER 1 YEAR

1. Bank Vic, 1.05 per cent, $25,263.

2. MOVE Bank, 1 per cent, $25,250.

3. Judo Bank, 0.97 per cent, $25,242.

4. Teachers Mutual Bank, 0.9 per cent, $25,225.

5. Gateway Bank, 0.9 per cent, $25,225.

Source: Mozo.com.au, based on a $25,000 balance.

Originally published as RBA retains cash rate at historic low as retirees struggle to generate returns