savings account interest rates hit by bank changes

Written by The ReReport

SNEAKY changes to savings account interest rates are further shrinking Australians”™ ability to grow their cash in the bank.Interest rates paid on deposits are already at record lows, and now banks are dropping the ongoing interest rates — known as base rates — on their flexible savings accounts.They are hiding the cuts by lifting the accounts’ short-term promotional interest rates.Between March and September nine banks — including all of the Big Four except ANZ — dropped base rates while lifting promotional rates, data from research group Canstar shows.The end result for customers is they get paid a paltry interest rate as low as 0.5 per cent unless they continually switch accounts and banks to chase promotional rates.Canstar group executive financial services Steve Mickenbecker said banks were trying to preserve profits while the people hit hardest were retirees and those saving for a home deposit, who had not seen an official rate rise for eight years.“Banks have knocked down their base rate and bumped their promotional rate so they can still advertise the same rate,” he said.media_cameraAll of the Big Four banks ”” apart from ANZ ”” have hit savers with interest rate cuts.“After three or four months you lose the promotional rate. Anyone who has an account and has been there for a while isn’t getting the promotional rate.”RateCity research director Sally Tindall said the practice was putting people’s savings in reverse.“If you are earning under inflation — currently 2.1 per cent — your money is going backwards,” she said.“In some cases the overall rate is higher than it used to be, but only because the promotional rate has been jacked up to disguise a decreasing base rate.”NAB, Westpac and CBA have cut base rates from 0.8 to 0.5 per cent in recent months. NAB’s iSaver promotional rate climbed from 1.1 to 2.05 per cent, while Westpac’s eSaver and CBA’s NetBank Saver promotional rates rose from 1.71 to 2.01 per cent.It was vital for savers to read the fine print to avoid being tripped up, Ms Tindall said.“When looking for a savings account, look for one that at least offers you more than inflation on an ongoing basis, unless you are going to be jumping from bank to bank every three or four months,” she said.“You will be better off with a higher ongoing rate rather than a quick-hit promotional rate.”Some higher-rate accounts might have conditions such as making a minimum monthly deposit or no withdrawals, but if you could meet those conditions they were a better option, Ms Tindall said.Term deposits were an option for savers who did not mind locking money away for a while, she said.Mr Mickenbecker said the only other option was to regularly switch banks but most people did not do this.“The reality of life right now is you won’t get rates above 3 per cent,” he said.“It’s not a great time for savers, who very much need the Reserve Bank to move rates up.”@keanemoneyOriginally published as Banks trick savers on interest rates

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