What will savings rates be like in 2025?

As 2025 gets started and the likelihood of cash rate cuts increase, it’s possible that savings rates will see a downward trend this year. 

The problem is that Australia is still battling high inflation and is generally short on economic certainty, which is why calls for rate cuts continue.

Yes, the high-yield environment of 2023-2024 provided some attractive returns for savers, but now several economic factors suggest we may see more moderate savings rates ahead, in line with the desire for greater investment, generally.

The interest rate outlook

Many economists predict a shift in monetary policy in 2025. The Reserve Bank of Australia (RBA) might pause its tightening cycles—or possibly initiate gradual rate cuts—if inflation continues to ease and economic growth slows. Once inflation is under control however, policymakers may want to prevent the economy from cooling too much.

For savers, this potential relaxation in monetary policy could mean slightly lower returns on deposits compared to recent peaks. Still, rates are unlikely to plummet overnight. 

If policymakers adopt a cautious stance, any cuts will likely be incremental—perhaps 0.25% or 0.50% at a time—to avoid shocking the market.

Where does the cash rate go in 2025?

While there have been some bumps in the data, the overall trend in CPI (consumer price index) inflation has been a gradual slowing. No one can know the future though, and it’s possible that economic or geopolitical black swan events cause another inflationary spike. 

As of right now, the current scenarios are:

1. Rate cuts: The RBA might cut rates by small increments of 25 basis points. This would trickle down to savings accounts, leading to modest decreases in yields. Rate cut predictions by economists at the big four banks currently predict cuts to start in February or May of this year. 
2. Extended pause in rate movements: If inflation hovers just above the target rate, then the RBA cash rate may be held steady throughout the year. In this case, savings rates would stay around current levels. 
3. Multiple rate hikes: A scenario in which economic conditions worsen due to an economic shock would make multiple rate hikes a likelihood and significantly increase savings rates. This scenario is less probable, based on the views of most economic experts.

Where to park your savings as we head into 2025?

Bonus or intro rate savings accounts, known for their lower overhead costs, are likely to continue offering competitive rates to attract deposits. These digital institutions typically provide better returns than traditional brick-and-mortar banks, though careful attention should be paid to any conditions attached to promotional rates.

Term deposits present a different option for those seeking guaranteed returns. By locking in funds for a set period, savers can secure current rates regardless of future market movements. 

For mortgage holders, offset accounts remain an attractive alternative, effectively reducing home loan interest while maintaining easy access to funds.

Compare savings rates

While high savings rates of recent years may moderate, diligent savers can still get ahead by keeping an eye out. The key will be balancing the desire for higher yields (possibly with a savings account) or opting for predictable term deposits with slightly lower interest.

No matter the chosen strategy, savers can ensure they’re getting one of the top rates by comparing providers. Check out high interest savings accounts or term deposits on our hub pages today.