Why is DOESN’T pay to save with every major bank slashing interest rates

Australians who are prudently put their money away are getting next to nothing for doing so, with every major bank cutting interest rates on savings accounts.

National Australia Bank is the latest of the big banks to this month shortchange customers, reducing saving rates by 0.1 percentage points on its iSaver and Reward Saver accounts to just 0.85 per cent per annum.

Lower savings rates are bad news for pensioners and retirees, who often rely on the interest to fund their everyday expenses.

Three of Australia’s big four banks have cut saving rates in September amid expectations the Reserve Bank of Australia will cut the cash rate to a new record-low of 0.1 per cent by Melbourne Cup day in early November.

Financial comparison group Canstar’s group executive of financial services Steven Mickenbecker said Australians who lived off their savings would now have to even more aggressively cut back on their spending.

‘Even if it’s just to lift meagre interest rates to mediocre returns, savers have to manage their money actively or make do with modest remuneration,’ he said.

The major banks have all cut their saving rates in anticipation the Reserve Bank of Australia will cut official interest rates by the end of the year from an already record-low of 0.25 per cent.

Westpac chief economist Bill Evans is expecting the RBA to ease the overnight cash rate to a new record-low of 0.1 per cent at its November meeting on Melbourne Cup day.

‘The bank is further likely to cut interest rates,’ he said. 

RBA deputy governor Guy Debelle last week described the prospects of an Australian economic recovery, from the first recession in 29 years, as a ‘slow grind’. 

The central bank is also expecting unemployment to remain at seven per cent at the end of 2022. 

With that in mind, it’s little wonder the major banks have cut their savings rates, with the Commonwealth Bank earlier this month cutting its Netbank Saver rate by 0.05 percentage points to 0.9 per cent – the highest savings rate among the big banks.

Westpac cut the savings rate on its Life product by 0.15 percentage points on September 5, taking it down to 0.85 per cent. 

ANZ was the first to cut saving rates on June 11, slashing interest on its Progress Saver by 0.15 percentage points to 0.85 per cent.  

Australians disappointed with the major banks have other choices with Rabobank Australia offering an introductory rate of two per cent on its High Interest Savings Account for four months.

The Heritage Bank is offering a 1.9 per cent rate on its Online Saver, also for four months.