Last week’s dramatic rate cut of 50 basis points by the RBA saw savvy savers scrambling for the best interest rates. But before you tie the knot with a charming new savings account, be wary of the “honeymoon hoax”.
As base deposit rates start to follow the declining cash rate, banks gloss over their low savings account ongoing rates with attractive ‘honeymoon’ rates that last only for a few months. Once the “honeymoon period” ends, usually within 4 – 6 months, savers are jilted, and suddenly stuck with stingy ongoing rates.
Since 2009, the number of banks that have pulled this dual-pricing trick has doubled, while the gap between the average honeymoon rate and the standard rate has also increased. For example, ANZ’s Online Saver account currently features a honeymoon rate of 6% but the standard rate is just 4.25%, a 1.75% difference. In October 2011, this gap was 1.50%.
What’s more, the length of the average honeymoon rate period has been cut from 5 months to 4 months since the RBA rate cut last November, which means your “charming” new savings account will show its true colours faster.
Indeed, some of the best savings accounts don’t offer “honeymoon rates” at all.
Take the UBank USaver account for example. This account consistently tops the high interest savings account market, and you’ll receive its 5.51% ongoing rate as long as you deposit $200 or more every month via an automatic savings plan.
But if you don’t want your savings to be tied down to any conditions, the Railways Credit Union (5.80%), RaboDirect (5.40%) and Newcastle Permanent (5.36%) are also fine suitors for your money by offering competitive ongoing rates free of restrictions.
It’s interesting to note that RaboDirect’s high interest savings account offers a “honeymoon rate” of 6.01% for 4 months on top of the already competitive 5.40% base deposit rate, so if you must squeeze a few more dollars out of your savings in a short amount of time, this is the account to pick.
If you’re willing to be a rate tart and are prepared to move your money around every couple of months to get the best rate, then go for the high honeymoon rate offers. If not, it’s best to stay faithful with an account that is going to offer you a high ongoing rate that will see you towards your savings goal.