Bank deposits surge 55 per cent in five years amid Covid, rate rises

Bank deposits have boomed in recent years because of two key factors. See where the money has been stashed.

Households have hoarded more than half a trillion dollars of extra cash over the past five years despite the pandemic and soaring living costs.

New figures from banking regulator APRA show household deposits leapt 55 per cent between March 2019 and March 2024, but the rapid growth rate appears unlikely to continue – especially after interest rates start falling again.

The cash surge, from $948bn in March 2019 to $1.47 trillion in March 2024, was largely kickstarted by Covid-19 making people more conservative about protecting their families and wealth while being unable to spend money on big-ticket items such as overseas travel.

Then, since May 2022, the string of 13 Reserve Bank interest rate rises made cash deposits more lucrative for investors.

RateCity research director Sally Tindall said APRA’s household deposits data also included money sitting in mortgage offset accounts, and borrowers worried about RBA rate rises were stashing money in these accounts to build financial buffers.

Ms Tindall said Covid was “a wake-up call in terms of a lot of families getting their finances in the best shape possible”, including building cash reserves.

But the sharp jump in interest rates – which have pushed up repayments by more than 60 per cent for many borrowers – had created “a tale of two cities”, Ms Tindall said.

“We know some families aren’t making their budget add up and can’t put food on the table, and others are potentially saving more than ever,” she said.

“One of the most effective ways to beat the rate hikes is to be squirrelling money away in offset accounts.”

The APRA figures show the big four banks’ share of household deposit has dropped from 75 per cent to 73 per cent in the past five years, largely because of a huge rise in deposits at the nation’s fifth-largest bank, Macquarie.

Deposits at Macquarie jumped from $9.9bn to $63bn, a gain of 536 per cent. The second-biggest deposit rise belonged to Bank of Queensland, up 142 per cent to $33.6bn.

Ms Tindall said Macquarie had offered aggressively competitive interest rates on both deposits and home loans, grabbing a larger market share.

RateCity’s Sally Tindall says Covid-19 was a wake-up call for savers. Picture: Tim Hunter.

KPMG chief economist Brendan Rynne said Covid was the start of driving people toward cash deposits, “even though you were getting a decline in deposit rates because the cash rate was falling”.

People were worried about the risk of a capital loss so fled to the safety of cash, he said.

“Then what happened is you had inflation taking hold and the cash rate rising, which pushed up deposit rates and made cash attractive because you were getting 4, 5 or 6 per cent.”

Dr Rynne said he did not expect another 55 per cent jump in household deposits in the next five years.

“I think what you are going to see is that as inflation reduces and the cash rate falls, the return on cash is going to decline and it becomes less attractive,” he said.

“Funds that are currently held in cash will find another home.”

However, the current higher-for-longer theme around the RBA cash rate would keep deposit levels strong, Dr Rynne said.

“The uncertainty in the marketplace and volatility around interest rate expectations is probably causing cash investors to maintain that position of better the devil you know,” he said.