Cash deposit interest rates sink further, so here’s what to do

Some banks have taken a fresh to the interest rates they pay on savings accounts as the Reserve Bank mulls another official rate cut within months. Here’s what you should do now.

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Banks are continuing to cut deposit rates despite the Reserve Bank staying on hold.

Since the start of February, 10 banks have cut savings account interest rates by up to 0.15 per cent, new data from comparison website Mozo shows.

Westpac, Suncorp, St George, Bank of Melbourne, BankSA and a handful of mutual banks have trimmed rates, and Mozo director Kirsty Lamont said Australia’s average ongoing savings account rate was now just 0.97 per cent.

Mozo.com.au’s Kirsty Lamont.

AMP Capital chief economist Shane Oliver

Ms Lamont said banks’ profit margins were being squeezed by an ultra-low Reserve Bank of Australia cash rate of 0.75 per cent, and some might be cutting in anticipation of more RBA cuts this year.

“With rates continuing to fall it’s more important than ever for savers to maximise their savings by shopping around,” she said.

Ms Lamont said savers could still get deposit rates above 2 per cent through a new breed of banking competitors.

“The ray of light for savers right now has been the entry of neobanks to the market with exceptional rates bringing much-needed competition,” she said.

Xinja, Up and 86 400 are all offering ongoing rates of 2.25 per cent, and Xinja’s rate has no conditions attached.

Ms Lamont said neobanks were regulated the same as traditional banks and deposits of up to $250,000 per person were protected by government guarantees.

“You could consider a term deposit to help protect yourself from further rate cuts this year,” Ms Lamont said.

“Right now you can still get 1.9 per cent on a 12-month term deposit.”

A Reserve Bank cash rate move in March appears unlikely, with financial markets forecasting just a 7 per cent chance of a cut, but economists still expect another cut or two this year.

AMP Capital chief economist Shane Oliver said the RBA indicated this month that “it wasn’t in a great hurry” to cut rates again and was weighing up its options.

“At this stage we have a cut pencilled in for the next couple of months, probably April, and another one for about June,” he said.

Dr Oliver said the impact of the bushfires and coronavirus was likely to push Australia’s economy into reverse for the March quarter and increase the chances of more rate cuts.

“Most savings rates and term deposit rates used to be below the cash rate but that was when the cash rate was a lot higher,” he said.

“To some degree depositors have been protected even though it doesn’t feel that way.”

@keanemoney