How to beat bank deposit interest rates
Interest paid on savings accounts is sliding further towards zero, prompting people to consider putting their cash elsewhere.
Rate reductions on term deposits, online savings and bonus saver accounts have accelerated in recent weeks ahead of a potential official rate cut by the Reserve Bank on Melbourne Cup day next month.
Research group Canstar says all major banks have cut savings rates since late September, and even the new breed of higher-interest, digital-only banks - neobanks - are cutting payments.
"(Neobank) Xinja has also announced deposits above $150,000 won't receive any interest earnings, and 86 400 has revealed it will cap bonus interest earnings at $50,000 per Save account from 1 November," says Canstar's group executive of financial services, Steve Mickenbecker.
On Tuesday the Commonwealth Bank cut savings rates for the second time in just over a month, and the sixth time this year.
The average big four bank savings rate is below 0.3 per cent, while the best rate anywhere is 2 per cent. However, all top-end rates come with conditions or four-month promotional periods before dropping back towards 0.5 per cent.
So where can Aussies go for a better return?
The answer usually involves being riskier with your money, which makes many savers uncomfortable.
Mickenbecker says shares are often the first option, and people can diversify their risk though ASX-listed exchange traded funds that spread money among many different companies.
"Of course there's a lot more risk than your bank deposit," he says.
While share dividends pay incomes averaging 3.6 per cent, share prices plunged 37 per cent in March's COVID collapse.
Fixed interest can offer better returns than cash deposits, and there are managed funds and ETFs specialising in corporate bonds with annual returns currently above 2 per cent.
"You do have to understand the portfolio you are buying into - if it's a 5 per cent return you know you have some junk bonds in there," Mickenbecker says.
These products - where personal loan customers are matched with individual investors - "are fairly accessible", says comparison website Mozo.com.au spokesman Tom Godfrey.
Peer-to-peer lending rates to investors are typically above 3 per cent, but some have been affected by the pandemic.
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"With the average home loan interest rate coming in at 3.34 per cent, having any extra cash in an offset account is worth considering," he says.
Originally published as How to beat bank deposit interest rates