Mozo’s 2021 National Savings Report: Fearful savers forgo extra interest

Key findings:

• Australians have been in savings mode since early 2020, but most aren’t shopping around to find the best rate of interest.
• 52% of savers believe the big banks are a safer place to keep their money during economic uncertainty. 
• There have been 224 cuts to savings accounts since the RBA last cut rates in November 2020, with the average ongoing rate in the Mozo database now sitting at 0.43%.
• 80% of savers are with the big four banks despite their average ongoing at-call savings rate wallowing at just 0.18%, 117 basis points below the leading rate.
• The top ongoing at-call savings rate is 1.35% through ING, while the average at-call savings rate has fallen 53 basis points over the last twelve months from 0.96% to 0.43%.
• Top ongoing at-call savings rate for under 30 year olds is 3.00% through Westpac.

Aussies are saving more, but losing out. How so?

If you go by the numbers, Australians haven’t been the most dedicated savers over the last decade. Economists at the Reserve Bank use a measure they call the ‘savings ratio’, which in a simple graph can show us that since about 2012 our savings in relation to our income has dropped. As such, where we have parked our money perhaps hasn’t been top of mind. Hopefully it will become more top of mind with the findings of this report. 

Another factor to this point has been our spending as a nation. You might even say we’ve been consistently strong spenders, with our national spending rate typically represented by a 45-degree incline on any line graph showing the years 2012 to 2019. Numbers from the Australian Bureau of Statistics can confirm this trend, so too can several survey-based reports like that conducted by ME Bank, which in 2018 showed that the combination of rising expenses and subdued income gains has led Aussies to actually dip into their savings. Yes, we have been saving less.

Last year’s sledgehammer to the global economy has shifted this trend though - at least, on the savings front. As the graph below shows, COVID-19 led restrictions forced many people to revise their spending-to-saving equation, with the household savings ratio skyrocketing during 2020.

Mozo’s latest report into the state of the nation’s savings shows that there may be a renewed interest in saving money - a good thing on the face of it. The problem is that most Australians are not depositing their money into accounts that provide them with the highest available interest rates. At a time when every dollar counts, plenty of savers are missing out on opportunities to increase their safety nets further.

Safety a priority in uncertain times

With financial safety top of mind for many Australians, overall deposit balances have swelled. But more interestingly, this concern around safety has also impacted people’s opinions about where they should be stashing their cash. Mozo’s latest survey found that 52% of Australians believe the big banks are the safest place to keep money during economic uncertainty, while 44% of those surveyed say they park their savings with the big four because “they always have”.

Old habits die hard, it seems. There’s also an issue of convenience, if not pure complacency among Aussie consumers. For instance, our research shows that around 1-in-3 savers stay with the big banks because they have other products with them, and just over a quarter (27%) believe that they’re more competitive than other options. 

This is at odds with the fact that a number of big bank savings rates sit below the average in the Mozo database. Yet widespread loyalty to the big four banks persists, with 80% of those surveyed electing to keep their cash with the top end of town. This is supported by Australian Prudential Regulation Authority (APRA) data which shows that most of Australia’s household deposits - $815 billion out of the total $1.099 trillion (74.1%) - are with the big four banks.

Household deposits are spread across the big four as follows: CommBank - 27.2%, Westpac - 20.9%, NAB - 13.4%, ANZ - 12.6%, according to APRA. The next largest is ING at 3.7%. While these figures represent household funds rather than the actual market share of deposit customers, they still indicate the level of comfort savers have with these bigger brands. 

Is your money as safe in a non-major bank? 

A majority of Australians may consider the big four banks to be a safer place to store their savings, but is that necessarily true? It’s a question that has almost certainly crossed many savers' minds during this period of economic uncertainty, and one which was pushed into the spotlight with the recent downfall of one of Australia’s budding neobanks. 

Xinja shut down its savings and transactions accounts in December and relinquished its banking licence, but has since returned over $252 million worth of deposits to customers. This was actually a test of sorts of the underlying safeguards in the Australian banking sector, as it was the first time an Authorised Deposit-taking Institution (ADI) had been required to return deposits to all of its customers. 

Ultimately, whether your money is with the one nation’s biggest deposit takers or with a smaller online bank, it is protected (to some degree) under the Financial Claims Scheme. The scheme, which was introduced by the Australian Government in 2008, guarantees deposits of up to $250,000 per person, per ADI, in the unlikely event that a bank goes under.  

As Mozo Director, Kirsty Lamont, points out, the scheme should provide savers with a sense of security so they can feel comfortable opting for a savings account from a bank that’s offering a more competitive rate. 

“Although you might not have heard of some of the neobanks and smaller deposit takers around, there’s nothing to fear by moving your money to them to get a better return on your savings,” she says. 

Ignoring interest rates? It’s a losing strategy

If safety is one issue Aussie savers are weighing up then interest rates should be the other. After multiple Reserve Bank cash rate cuts over the past two years, at-call savings rates have fallen drastically across the board, yet there still remains a significant difference between different banks. 

The average big bank rate has dropped to just 0.18%, as of 11 February 2021, coming in 25 basis points below the Mozo database average of 0.43%.^

As for the big four banks’ best offers without an age restriction, you would be looking at ongoing rates of 0.40% (conditional) which is still three basis points under the average. One exception though is Westpac’s Life account which currently offers young savers under 30 a great 3.00% rate.

Meanwhile at the time of writing, the top ongoing at-call savings rate without an age restriction is 1.35% through ING, which sits 92 basis points above the average. 86 400, ME, MyState Bank and Macquarie are also offering competitive rates of up to 1.20%. Even though most of the top savings rates in the Mozo database belong to non-major providers, only 7% of Australians surveyed believe it is more advantageous to bank with a smaller bank during the current economic climate.

Lamont says that favouring the big banks could truly be detrimental to your savings strategy, especially with savings rates continuing to tumble.

“Fear and familiarity are the last things you should be banking,” she says. “The fact is blind loyalty to the big banks can prove very costly. Your best option is always to compare rates and switch to get the best possible return on your hard earned cash.” 

Why shopping around still matters

Given how much savings rates have declined over the last few years (see the graph below for more details), deposit customers can be forgiven for feeling discouraged and even raising the question of whether there’s still value in shopping around for the best deals in a low-interest environment.

For instance, while the latest ABS/RBA data shows the past 12 months has seen many Australians increase their savings, Mozo has found that around a third of Australians can no longer rely on the return they are getting from their savings to cover day-to-day living costs. The finding comes as the big banks are set to end ‘mortgage holidays’ for borrowers in financial difficulty and the Federal Government’s JobKeeper and JobSeeker support payments are due to be wound back next month.   

“As industry and government support is turned off for thousands of Australians next month, it’s concerning that so many Australians are relying on a big four bank to generate a return on their savings to cover living costs,” Lamont says.   

Although savers are certainly finding it harder to earn interest now than in previous years, it pays to remember that a huge gap still exists between the highest and lowest savings rates - a 135 basis point difference according to Mozo data, if we exclude age-restricted accounts. As such, there’s still very much an opportunity to maximise your interest earnings by putting money inside a more rewarding savings account. 

For instance, Mozo’s savings calculator reveals that if you placed $30,000 in a savings account with a 1.35% rate, you would earn $2,094 in interest over five years assuming that the rate stays the same. Whereas if your rate is 0.40%, your interest earned over the same period would only be $606 - over three times less. 

Savings strategy: 4 tips to boost your balance

If maximising your savings is the main aim of your game then securing a competitive interest rate should only form one part of your strategy. After all, in a low interest environment, proactive measures are going to play a key part in growing your balance. 

Here are four tips to make sure you’re doing just that: 

• Ensure you can meet any interest requirements: Parking your savings in an account with a great ongoing rate is one thing, but you won’t be able to benefit from that rate if you aren't regularly meeting the account conditions. Minimum deposits, card purchases and increased balances are all common requirements of bonus rate savings accounts, so if you’re unlikely to meet them, a ‘no-strings-attached’ account might be a better fit.    
• Earn the maximum interest on your money: To ensure you're earning the most interest possible it may be worth keeping the bulk of your money in a high interest savings account and simply transferring cash into your transaction account as necessary. You might have to keep a closer eye on your transaction account balance to make sure you’ve got enough funds for your day-to-day spending and bills though! Or alternatively, set up notifications via your banking app (if it allows it) to alert you when your balance is low.     
• Take advantage of automated savings features: Making regular contributions to your savings balance has never been easier thanks to features like automatic roundups. A number of banks (Bank Australia, Beyond Bank, ING etc.) now offer roundup features which let savers nominate an amount (e.g. to the nearest $1 or $5) that is automatically transferred into their savings account for every purchase made. For example, a $7.20 purchase would be rounded up to $8 and the difference (80 cents) deposited into savings.
• Identify your savings goals (and stick to them): Whether it’s a short term goal like saving for a new phone or a longer goal like building up an emergency fund, having a purpose in mind will help give you the motivation to save consistently over time. Many banks are making goal-setting easier by allowing savers to open multiple savings accounts which can be customised for different goals, and some banks, like 86 400 and Up, even allow savers to earn the maximum interest rate available on multiple accounts (if the conditions are met).

This report was a collaboration between Katherine O’Chee, JP Pelosi and Tom Watson. 

^Averages exclude Westpac’s 3.00% rate for customers under 30.