The possibility for mortgage holders to take advantage of this new low rate environment and to potentially find a better interest rate sounds amazing.
However, home loan interest rates aren’t the only thing affected by these rate cuts. Banks also tend to follow the Reserve Bank of Australia (RBA) decision when setting their interest rates on savings accounts.
How the RBA rates affect interest rates on deposits
When the RBA lowers the cash rate, people generally tend to think of only one side of this change….the lower home loan interest rate, leading to lower mortgage repayments and more money back in your pocket.
However, when the RBA cash rate drops, it frequently means that many banks follow suit and also cut interest rates on savings accounts.
These cuts to interest earned on savings, which in Australia are already at incredibly low figures, mean that savers will now stand to make little to no return on the money they have invested in savings accounts or term deposits. This could affect those who rely on their savings and interest earned for the income they need to pay the bills each week, with less return for their savings efforts.
Research director, Sally Tisdall, from RateCity1 said that “All four big banks have slashed their base rates to just 0.30 per cent interest, when inflation is sitting at 1.3 per cent. That’s a nightmare equation for anyone trying to save.”
How to make your savings count
But it’s not all doom and gloom. While your savings might not be growing at the same rate as they were a few years ago – in these situations, it pays to know what to look for and how to make the most of your savings. Here are our tips:
A deeper look into interest rates
We know that this is pretty straight forward – however, it’s a good idea to look a little deeper into the interest rates on offer for savings accounts.
Knowing what the base rate and maximum interest rates are is a great start. The minimum interest rate gives you an idea of how much you will earn on your savings in any given month, and the maximum is how much you could earn if you followed all of the account’s terms and conditions.
This takes us into our next point.
Know the terms and conditions
If you come across a savings account that is offering a better interest rate than you currently receive, it’s time to investigate what you would need to do to receive this rate.
This could include depositing a minimum amount each month, depositing a certain number of times or even not making any withdrawals.
Look further than your current bank
Put your current bank aside for a second because there are so many options on the market, why would you want to limit yourself?
Take a look around to see if the rate on the highest interest rate savings account for your current bank can be beaten elsewhere.
Know where your savings are
Do you know where your savings are currently sitting? Are they in a transaction account, offset or savings account? Would you know the difference it could make to your savings having it sit in one account versus spread across multiple accounts (and frequently multiple banks)?
If you’re unsure what difference this could make to your savings, speak to your local Mortgage Choice financial adviser who can work with you to determine the right strategy to help you make the most of your savings.
Set a savings plan in motion
Yep, it always comes down to a budget (have you sorted yours out yet?). What are your goals, is it for something in particular, do you know how much you need to put aside each pay?
Once you know the terms and conditions for your new (hopefully higher interest rate) savings account, consider what you need to do to make sure you meet the requirements each month to earn the maximum rate. Should you split the savings you deposit into 3 different transfers? Or should you be looking at where you can make savings in other areas of your budget to ensure you meet the minimum amount required to transfer into the account to receive the higher rate?
If you’re looking for ways to build your savings, create some financial freedom or if you want some help to achieve your savings goals, give us, your local FinChoice financial adviser, a call today! We can help you devise a strategy to set your ideas into motion and help you work towards achieving your financial goals.