The Reserve Bank might have taken the axe to interest rates over the last six months, but savers needn’t despair quite yet.
Savings rates are still extremely competitive. New players like AMP and ANZ’s SmartyPig have recently launched high interest accounts, while challenger brands like RaboPlus and ING DIRECT continue to keep the banks on their toes.
Now that interest rates are settling down after a flurry of cuts, it’s a great time for savers to check their current rate against the best on the market to ensure they are still getting a good deal.
With this in mind, the team at Mozo has put together our Top 5 Tips for comparing savings accounts.
1. Promo rate tricks
Be wary of promotional savings rates that are only available for a limited time. Some savings accounts advertise headline rates of up to 4.5%, but after the first three or four months these rates drop right down, often to less than 3.0%.
Unless you are the sort of person who actively moves their savings every three months, or you only want a short-term savings product, you will be better off with an account that has a competitive ongoing rate. The RaboPlus savings account offers 4.0% on call with no nasty small print.
2. Provider track record
Look at the financial institution’s track record on savings rates. Is the advertised rate just a good rate today, or is the institution known for offering consistently competitive rates?
Mozo recently analysed the interest rates track record of the major savings providers and found that over the last six months, 8 out of 17 institutions have cut savings rates by more than the Reserve Bank. By contrast, RaboPlus and ING Direct have absorbed a significant percentage of the base rate cuts to maintain consistently competitive high interest savings accounts.
3. Interest rate conditions
Understand the conditions attached to an advertised interest rate, such as whether you need to maintain a minimum account balance or deposit a certain amount each month.
For instance the BankWest Regular Saver account offers a market-leading rate of 5.0% but you need to deposit between $50 and $500 per month, and make no withdrawals, or you’ll earn 0% instead.
If you’re not 100% sure that you’ll be able to meet these sorts of account conditions each month, go for a savings account without hurdles instead. The Members Equity Bank Online Savings Account has a competitive 4.0% interest rate with no strings attached.
4. Linked accounts
Check whether the institution requires you to open a linked bank account along with the savings account.
This is an increasingly common condition attached to high interest savings accounts. In addition to the hassle of having to open a separate account to access your savings, you may also get hit with additional bank fees.
The alternative is a new breed of accounts like the AMP First account, which offer high interest and everyday transaction access all in the one account. The AMP First account gives you easy access to your money via ATM, EFTPOS, online and cheque, plus a competitive 4.35% on your savings.
5. Accessing your cash
Work out what sort of access you need to your cash. If you’re happy to leave it under lock and key for a period of time, consider term deposits as an alternative to savings accounts.
Term deposits protect you from further drops in interest rates and exist for terms of anywhere from 30 days to 3 years. Right now UBank is offering 4.51% on 90 day term deposits and Macquarie Bank has 2 year term deposits at 4.5%.