Bank deposits surge as worried households hoard their cash

Cash in the bank held by Aussie households has hit a huge milestone, even while millions are doing it tough. Here’s why.

Household deposits across Australia have surged higher despite the twin pressures of rising interest rates and the cost-of-living crunch.

New figures from banking regulator APRA show Australians stashed away another $100 billion in bank deposits in year to April 30, taking the total to a record $1.37 trillion.

For the first time, the big four banks hold more than $1 trillion of customers’ cash between them, and money specialists are urging savers to compare savings account providers as rates may rise again this week.

Household bank deposits have boomed since before the pandemic, with market leader the Commonwealth Bank now holding $370bn, 45 per cent more than it did in April 2019.

Eleven Reserve Bank interest rate rises since May 2022 have strained household budgets but failed to stop the flow of deposits, with CBA taking in another $20bn in the past year.

RateCity research director Sally Tindall said the increased money in the bank since 2022 “defies logic and gravity”, after many households with mortgages had seen their repayments rise 50 per cent in just 12 months.

Ms Tindall said rising deposits also reflected money in customers’ mortgage offset accounts, which had been boosted during the pandemic and now were a safety net for many.

“People are really starting to rein in their discretionary spending – that’s partly out of sheer necessity for many Australian families,” she said.

“Some people are saving every single dollar now that rate hikes and the cost of living have eroded their buffer.”

Others are depositing more cash to benefit from the higher interest rates.

“Pensioners and retirees may be getting a decent rate on their saving account but they are still not keeping up with inflation,” Ms Tindall said.

RateCity research director Sally Tindall says shop around. Picture: Tim Hunter.

Canstar group executive financial services Steve Mickenbecker said the higher deposits illustrated Reserve Bank monetary policy in action, as people saved rather than spent.

“It bludgeons people who have large mortgages,” he said.

“As deposit rates go up, savings start looking better than they were in the past.”

Mr Mickenbecker said there also was a psychology of fear among Australians as they were constantly confronted with talk of recessions and tough financial times.

“People are saying now is not the time to be opening their wallet too much, because they don’t know what’s ahead,” he said.

The APRA figures show Macquarie Bank has been the star performer for growth in deposits, tripling from $10bn in 2019 to $33.8bn last year, then surging another 65 per cent to $55.9 billion in the last 12 months.

Mr Mickenbecker said Macquarie’s strong growth in mortgages had helped drive its deposits higher.

Ms Tindall said Macquarie had “gone from strength to strength in the last couple of years, but their ongoing savings rate has dropped back in recent months.”

“That’s a good reminder to keep shopping around,” she said.

Ms Tindall said there were now several accounts with deposit rates above 5 per cent, although there were “plenty of hoops to jump through to qualify for each one”.

“Savers with a set-and-forget mentality could find they’re getting stung, as banks purposely leave some interest rates down in the dungeons,” she said.

“Many banks have kept complacent savers on interest rates that are under 2 per cent, despite the fact the cash rate is nearing 4 per cent.”

Originally published as Bank deposits surge as worried households hoard their cash