Getting 5pc on savings not as simple as it sounds

The outgoing governor of the RBA has turned heads suggesting you can get 5 per cent on savings accounts ‘without too much trouble’.

Philip Lowe, the departing governor of the Reserve Bank, says you can get 5 per cent on your money in a savings account without too much trouble.

Can we believe him?

Anyone who took the governor’s infamous statement that interest rates would not change for two years learnt a hard lesson. Lowe was trying to achieve something – getting consumers to spend through a crisis – and he said something which turned out to be wrong.

There are parallels now with his swan song call on bank account interest rates – he wants consumers to stimulate competition between the banks.

But 5 per cent on cash with no lock-in? Really?

If you are with a big bank and even if you fix your money for a long period of time in a term deposit you generally don’t get 5 per cent: To get 5 per cent or more you will most likely have to deal with one of the minnows of the lending sector.

But, actually, under certain circumstances, there are rates of 5 per cent being offered widely on ongoing accounts: In something of a paradox they are offered for “everyday” savings accounts.

Here’s the thing, to get that 5 per cent rate you must jump through hoops: It is never a question of placing your money with the bank and walking away.

There is a blizzard of competing conditions linked with your age, the amount you deposit and most importantly the level of activity you have with the bank: Importantly, often there is a minimum level of linked credit card transactions that must occur.

So, technically it’s true: RateCity research says 19 of the 88 banks in the market offer an interest rate of 5 per cent or more on an account under certain conditions.

But to achieve this rate of return you would have to do two things which might well “be trouble”.

First, you would have to move your account to the bank that offers the rate or move within your own bank.

Second, to get at these exceptional rates you would have to satisfy ongoing conditions – typically a minimum dollar amount must be put in the account and kept there. Additionally, there will be a minimum amount of transactions expected by you per month to achieve the rate.

As Sally Tindall at RateCity explains: “Where the rate is over 5 per cent the monthly terms and conditions can seem onerous.”

Steve Mickenbecker of Canstar adds: “Yes, there are some at 5 per cent but on average it is around 2.5 per cent. It’s clear the banks support these everyday bonus savings accounts very well – they have captured most of the official cash rate rises.”

If you really drill down to find an ongoing e-savings accounts it might be better to concentrate on the “base rate” offered.

Occasionally the base rates can be very attractive, says RateCity – Macquarie along with Bank of Queensland has a 4.5 per cent base rate while ANZ Plus Save has a 4.65 per cent base rate: Keep in mind these accounts are outliers, typically the base rates are nearer to 1 per cent.

As Lowe reportedly told the House of Representatives economics committee last week: “You can, without too much trouble, get more than 5 per cent on your transaction accounts, but some banks give 2.5 per cent.”

Unlike the fateful line about rates not changing for two years, on this final call by the governor it’s true: yes, it is possible under often onerous conditions to get 5 per cent, but you would not want to hang your hat on it.

Originally published as Getting 5pc on savings not as simple as it sounds