Expensive money mistakes that can sabotage your savings

Looming interest rate cuts are piling pressure on Australians to check their deposits. Here are the most costly errors we make.

Savers are being urged to check their bank accounts to avoid key mistakes costing their household hundreds of dollars each year.

An analysis by comparison website Mozo.com.au of hundreds accounts across 84 financial institutions has found two-thirds of standard bank accounts pay no interest at all.

It says keeping money in a bank account rather than a savings account is a key mistake made by one in three savers, while nearly half don’t know their savings interest rate and many others miss bonus interest by failing to meet account conditions.

Meanwhile, new figures from banking regulator APRA show household deposits have hit a record $1.6 trillion, lessening the incentive for banks to offer high interest rates to savers.

Mozo spokeswoman Rachel Wastell said its analysis of ongoing savings rates showed having a low interest-paying account could cost savers with a $25,000 balance more than $800 a year in missed interest.

“A lot of savers are unknowingly sabotaging their savings because they are not paying attention to the basics: the interest rate, the conditions they need to meet to get high promotional rates, and whether their money is in an account that actually earns interest,” she said.

Mozo spokeswoman Rachel Wastell says be prepared to ditch your bank loyalty.

“Banks rely on the fact that a lot of people prioritise convenience or simply do not check what their account is actually paying.”

Canstar.com.au data insights director Sally Tindall said financial institutions had cut savings interest rates following the RBA’s February rate cut, and there had been more moves and tweaks since then in a “what I would call a second round of cuts”.

“We have seen term deposit rates dropping like flies in the lead-up to what the market believes will be a cash rate cut,” she said.

Ms Tindall said the ACCC had previously found that 71 per cent of bonus savings accounts did not pay their bonus interest on any given month because savers failed to meet the conditions.

She said other mistakes included signing up for short-term promotional rates then failing to switch when they reverted to lower rates, and not picking the right account for their personal finances, goals and lifestyles.

“Life is busy – it’s full of many tasks that can easily get missed,” Ms Tindall said.

People should understand what was needed to earn the higher rates, and set up their finances so they could check their rates remained competitive, she said.

Ms Tindall said the new APRA figures showed there was “a lot of money sloshing around” in bank deposits across Australia, and people had perhaps been so diligent with their that financial institutions did not have to try too hard to attract more money.

Canstar calculates that people could lose more than $1000 annually on a $20,000 deposit if they fail to meet bonus rate conditions. It says the best rates today are 5.4 per cent for the ING Savings Maximiser account, and 5.25 per cent from MOVE Bank and BOQ.

Have you checked your savings interest rate? Many haven’t, says Mozo. Picture: iStock

Mozo’s Ms Wastell said people needed to know their interest rate, understand the hoops needed to jump through to get it, and decide whether they were better off putting money in an account with a high unconditional saving rate.

“The other thing I would stress is to ditch your bank loyalty, especially if you have your savings stashed with one of the four big banks,” she said.

“Smaller providers and specialists can often have much higher rates on offer with fewer conditions.

“There’s perhaps a feeling of distrust that comes with opting for a smaller bank — but with the government guarantee protecting deposits up to $250,000, savers can make their money work harder for them knowing their savings are protected.”

Originally published as Expensive money mistakes that can sabotage your savings