Why we’re ditching savings accounts
INTEREST rates for cash deposits are flatlining at record low levels despite home loan rate rises, prompting frustrated savers to turn their backs on cash in the bank.
Bank deposits are growing at their slowest pace in more than a quarter of a century as customers realise that the effects of inflation mean their cash returns are going backwards.
And fresh data shows that banks' eagerness to increase rates for mortgage borrowers does not extend to savers.
The latest Reserve Bank figures show that retail term deposit rates average 1.95 per cent, bonus saver accounts are paying 2.05 per cent and online savings accounts just 0.85 per cent - halving in the past two years.
RateCity.com.au has found that in the past three months 54 per cent of home loan providers increased mortgage rates but only 15 per cent of banks increased savings account rates.
"Savers are probably feeling a little bit lost right now, particularly as the prospect of the next rate rises has all but fallen off the horizon," said RateCity research director Sally Tindall.
Record high household debt was another reason why Australians were drifting away from savings accounts, she said. "A lot of people don't have a dollar to spare, let alone a dollar to save."
CommSec chief economist Craig James said Reserve Bank data showed bank deposits grew 0.9 per cent in the year to August, the equal slowest rate in 26 years.
"Fundamentally it gets down to low interest rate," he said. "It's taken some time, but more savers realise that their savings are going backwards in a real sense with Inflation at 2 per cent and deposit rates below this."
Mr James said the allure of share dividends paying 4-5 per cent was powerful, but there would always be some people who left their money in at-call deposits "no matter what".
Financial institutions often tweak interest rates, and new Canstar figures show 28 from its database have increased mortgage rates in three months, 15 have dropped rates and nine have done both.
However, just three have increased savings account rates - mainly short-term bonus rates - while seven have dropped them, it found.
In the latest flurry of mortgage rate rises "no high-profile players have moved their savings rates," said Canstar's group executive financial services, Steve Mickenbecker.
He said the falling popularity of cash in the bank reflected people moving money into other assets such as shares, pumping more cash into superannuation and putting more money into mortgage offset accounts to get a better return.
Self-funded retirees were doing it tough with 2 per cent interest rates, Mr Mickenbecker said.
"I feel sympathy for them," he said. "They're not all wealthy people. A lot are part pensioners and a lot are trying to make their $50,000 term deposit last as long as they can."