Are savings accounts still worth it with interest rates so low?

By Olivia Gee ·

Savers may be feeling a little despondent after the Reserve Bank of Australia (RBA) cut the cash rate again in November.

Since the 3 November cut, the average ongoing savings account rate has fallen three basis points (bp) to 0.63%*, according to Mozo’s database. This is after the Mozo researchers recorded 26 savings account cuts at an average of 16bp.

All in all, not great news for anyone wanting to earn interest on top of their nest egg.

Things aren’t looking too hot elsewhere in the world of deposits. In our November assessment of term deposits we also saw cuts across the board. 

Some savers may want to lock in the best of these fixed rates before more potential reductions. But others may require a flexible saving environment which allows them to dip into funds when required. So, they may need to stick with a savings account.

If you sit in the second camp, knowing the dollar figure you’ll get out of your savings can be helpful for budgeting. So, we’ve lined up a few scenarios on how much interest you could earn on different levels of savings.

How much savings do I need to earn good interest?

The answer to this is really in the eye of the beholder. Any amount of interest earned is a profit, so you may as well nab what you can.

However, you should definitely seek out a savings account with a top interest rate (and achievable interest-earning conditions) to maximise that profit. Let’s start by assessing the figures for potential savers with different sized nest eggs of $5,000, $20,000 and $75,000.

If you were getting the current average savings account interest rate of 0.63%* on each of these and not making any deposits, this is what a year of interest would look like:

$5,000 = $32
$20,000 = $126
$75,000 =  $474

Now, replace that with the current rate leader in Mozo’s database, MyState Bank Bonus Saver Account (this excludes the 3.00% interest-earning Westpac Life account for people aged 18-29). MyState offers 1.50% in interest, which in a year would produce:

$5,000 = $76 (that’s $44 difference)
$20,000 = $302 (that’s $176 difference)
$75,000 =  $1,133 (that’s $659 difference)

Just remember, like many savings accounts, MyState has conditions you need to meet to achieve the headline rate. It requires a monthly deposit of at least $20 and five monthly settled purchases via a linked transaction account.

If you are comparing savings accounts, ensure you investigate this kind of criteria and if it’ll suit your budget right now.

How is interest calculated on a savings account?

The interest rate you get on a savings account is compound interest. This is a rolling calculation on the initial deposit you make plus subsequent deposits or withdrawals, and the interest you earn. This basically means you’ll earn interest on your interest over time.

Most savings accounts will apply compound interest daily and often pay interest monthly, so you’re likely to see this as very small movements each month. Most online savings calculators take compound interest into account, as well as anticipated regular deposits.

If you’d like to learn more, check out this step-by-step guide to calculating interest on savings.

Compare savings accounts today - last updated January 23, 2021

Search promoted savings accounts below or do a full Mozo database search. Advertiser disclosure.
  • mozo-experts-choice-2020
    Bonus Saver Account

    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.20% p.a. (for $0 to $250,000)
    0.10% p.a.(for $0 and over)
    Yes up to $250,000

    Bonus rate when at least $20 is deposited each month and five Visa Debit transactions are made each month using linked Everyday or Glide transaction accounts.

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    Details
  • Serious Saver

    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    0.90% p.a. (for $0 to $1,000,000)
    0.05% p.a.(for $0 and over)
    Yes up to $250,000

    No withdrawals in the month. Bonus rate for first 4 months, reverting to 0.05% rate after*

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    Details
  • Saver Account

    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.10% p.a. (for $0 to $1,000,000)
    0% p.a.(for $0 and over)
    Yes up to $250,000

    Make 5 or more successful card purchases per calendar month using your Up debit card and digital wallets (ATM transactions excluded).

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    Details
  • Online Saver

    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.10% p.a. (for $0 to $500,000)
    0.35% p.a.(for $0 and over)
    Yes up to $250,000

    Bonus rate for the first 4 months from account opening

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    Details
  • Flexi Saver

    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    0.85% p.a. (for $0 to $5,000,000)
    0.05% p.a.(for $0 to $5,000,000)
    Yes up to $250,000

    Increase balance by at least $300 in the month

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    Details

*accurate at the time of publication.

^See information about the Mozo Experts Choice Savings Accounts Awards

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