Savings account interest: where you’ll get the best rates

Savers are being urged to watch their deposit accounts closely as interest rates peak to get the best possible deals. Here’s where.

Anthony KeanePersonal finance writer

@keanemoney

3 min read

February 7, 2024 - 3:00PM

The Australian Business Network

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Aussies have stashed record amounts of money in bank deposits but looming interest rate cuts mean they must work harder to get the best bang for their buck.

Households have more than $1.43 trillion in deposits, cashed up despite the cost-of-living crisis. However, many ignore the extra income available from smart saving strategies.

Interest rates above 5 per cent are still available on savings accounts and term deposits, and expectations of Reserve Bank rate cuts in the coming months mean they are likely at or near their peak.

RateCity research director Sally Tindall says the RBA rate is just one factor determining what a bank does with its deposit rates.

“Other factors include a bank’s appetite for deposits to help fund its home loan books, competition among lenders and the rates they’re offering, and the willingness of customers to switch to a different bank in search of higher rates,” she says.

RateCity Research Director Sally Tindall. Picture: Tim Hunter.

Switching is a common strategy among savvy savers, and Tindall says now is potentially a good time to lock money into a term deposit, “safe from the falling hammer of an RBA cut, but only if the rate you sign up to is competitive and the term suits your finances”.

But remember that things don’t always follow forecasts, she says.

“If you’re worried about your money being locked away, try a shorter length of term of deposit. You’ll still get a good savings rate and can see if this strategy works for you.

“Make a note of when your term deposit finishes and start thinking about your options well in advance – ideally a few weeks.”

High interest savings accounts are paying the best rates, but many come with catches including minimum monthly deposits and no withdrawals, so read the fine print.

“Interest on savings accounts is typically calculated daily, which means every day you have a dollar in your high interest savings account, is a day you earn interest on that dollar,” Tindall says.

“If you decide to stick with a high interest savings account, keep an eye on your rate,” she says.

“Banks don’t have to wait for the RBA before they cut it. In the last two months, we’ve seen four banks cut at least one savings rate without the RBA moving a muscle.”

Canstar group executive financial services Steve Mickenbecker says inflation data suggests there is unlikely to be another RBA rate rise but deposit rates continue to move both ways.

“There are still term deposit rates going up at the shorter end of maturity, like nine months, but others have gone down,” he says.

“I think we will see some savings account rates go up still because it’s probably six months before the Reserve Bank is likely to reduce rates.”

Mickenbecker expects jockeying among banks as they try to retain deposit customers as a source of funding for their loans.

He says savers should be wary of the differences between high introductory interest rates on accounts and the much lower base rates they revert to. A 4.5 or 4.75 per cent four-month intro rate can fall to an average base rate of 2.1 per cent.

Canstar’s Steve Mickenbecker expects banks will still compete for customer deposits.

“A lot of banks have plenty of room to lift savings rates,” Mickenbecker says.

“Don’t let your money just sit where it is – compare and be prepared to move it.

“Take advantage of bonus rates and intro rates because that’s how you do get a decent rate.”

If choosing a bonus saver account, make sure you can meet its conditions every month.

“Because if you don’t, your rate goes back to almost zero for the month,” Mickenbecker says.

He says people should take advantage of the federal government’s guarantee on deposits below $250,000 at any authorised deposit taking institution.

“You can confidently put your money in any smaller banks that you might have not even heard about, but provided you deposit under $250,000 the government will stand by it.”