If interest rates drop, what will you do with your savings?

Piggy bank, saving money
Image: Getty

NAB has a well-being index that tells us quite a bit about how much Aussies want to save, matched up against how much they actually stash away, on average. 

In reality, savings amounts are going to vary across age groups and income brackets, so the totals don’t interest me as much as the intention. Based on NAB’s index late last year, more Australians expect their savings to fall than rise in the next 12 months. 

Notably, the number of people expecting their savings to fall over the year (from October 2023 to October 2024) outweighed those expecting it to increase in all age groups, except in the 18-29 group, NAB said.

Expectations were most negative in the over 65 group but largely unchanged. Furthermore, fewer people in the higher income group expect to grow their savings in the next 12 months. 

So why reflect on this, anyway? Well, there’s a lot of talk about the official interest rate being potentially cut in 2024, which subsequently would see many savings accounts rates drop. 

Saving money in 2024 might need a better strategy

If you’ve been enjoying a 5.20% p.a. savings rate, for example, it could potentially fall by 10 or 20 basis points, depending on what the Reserve Bank does in 2024. The solution to combatting this type of unpredictable scenario might be to park at least some of your savings in a term deposit which will fix your rate of interest.

This doesn’t have to be for the long haul, though the longer you stash it away, the better it typically can be, with many banks offering higher interest rates on your longer term commitment to them. 

At the moment in our Mozo database, the highest term deposit interest rates across all of the terms are in the ballpark of 5.10% to around 5.30% p.a., generally speaking. Yes, they’re similar to savings rates but they’re guaranteed at that level for a set period of time, offering some security where your average savings account does not. 

Now if you weren’t keen on a particularly long-term deposit, you could opt for, say, three months with the likes of BCU Bank which currently offers 4.90% p.a. Or you could similarly lock your money up for 6 months with FirstMac and get 5% p.a. or Gateway Bank and receive 5.15% p.a.* 

If you were prepared to park your savings for a bit longer, you might consider ING, Bank of Sydney or Family First Bank, each offering savers 5.30% p.a. on their 1-year term deposits, for example (based on rates in the Mozo database in early January). 

So scribbling some numbers down on a pad might help with this decision because you’ll want to define how much money you can afford to lock away and how much you’ll need in case of emergency. 

In a time of uncertainty, the rewards are potentially there - as is the peace of mind - if you can at least part with some of your everyday savings for a little longer than usual. 

If you’d like to learn more about term deposits, why not compare some of the top term deposits available right now, as selected by our team of experts.

*Please note: Most of the products mentioned in this article are used as examples and more importantly have minimum and maximum requirements in order for a rate of interest to be awarded. Always check the fine print of each product before signing up.

Compare top term deposits - last updated 25 February 2024

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