February savings: Rate cuts slow but steady in the new year

You can make all kinds of new years savings resolutions, but you can’t control interest rates.

And unfortunately, the downward trajectory of savings rates has continued into 2021.

While it didn’t match the 60 reductions in December, the 32 savings rate cuts recorded in Mozo’s database over the last month aren’t encouraging for anyone trying to grow their stash.

It leaves the average ongoing savings rate at a dreary 0.43% – another five basis points lower than where we left it in 2020.

Bonus rates lose appeal

The accounts hit hardest at the start of the year have been those with ongoing bonus rates. 

These are the savings accounts which offer additional interest earnings for following certain conditions. This might be depositing a set amount each month, making a minimum number of transactions via a linked bank account and debit card, or not withdrawing from the account at all – or a combination of all of these.

If the incentive to squirrel away cash in the bank doesn’t glimmer with the promise of years gone by, you may want to explore other avenues to make your money work for you. 

So, what else can you do with your savings?

• Make voluntary super contributions 

Adding to this retirement fund can be a sensible long-term investment, as you’ll generally receive a better return on cash in your superannuation fund, which is also not taxed as high as your take-home pay. 

In the short term, it could be useful for anyone saving to buy their first home. The First Home Super Saver Scheme lets you make up to $30,000 in additional contributions over two years which you can withdraw (with some tax benefits) when you’re ready to purchase a home. Plus, you’ll be earning that solid super interest while it simmers there.

• Consider a home loan with an offset account

If you are looking to take out a home loan or refinance, an offset account can be a useful way to reduce the cost of your mortgage. It functions like a standard bank account, but reduces the portion of the loan which you pay interest on by whatever amount sits in the account.

Say you are paying down a $400,000 mortgage and have $15,000 in savings. By storing this in an offset account you’ll only pay interest on $385,000, which can amount to impressive savings over time.

• Build an emergency fund then focusing on paying down debt
  

It’s important to have a financial buffer to cover urgent or unexpected expenses like medical treatment or car repairs. But once you have your emergency savings fund sorted, cutting debt out of your life should be high on your list of financial priorities.

Most debts accrue interest the longer they linger, and can quickly spiral out of control if you owe money to multiple creditors. A debt consolidation loan can help you take control of this situation by bundling what’s owed into a single repayment plan with manageable interest.

Whatever amount you do have sitting in your piggy bank, you want it to be earning the best interest rate possible. So start researching high interest savings accounts with a few of the options below.