ACCC to put the blowtorch on savings rates: which banks will pass the test?

Sub-standard savings accounts that have not kept up with the rising cash rate are likely to come under scrutiny over the next month as the ACCC calls for submissions into its retail deposits inquiry. 

The launch of the ACCC’s issues paper into the savings sector today confirms the competition watchdog will be looking at how banks have applied cash rate increases to their savings products since the RBA began lifting rates last May.

The inquiry is likely to consider the fine print that comes with many savings products which can often see customers’ savings rates plummet to the floor.

How the banks’ savings rates stack up

While many banks have increased some savings rates by more than the RBA has prescribed, others still trail woefully behind as banks pick and choose which accounts get a boost after a cash rate hike, and which miss out. 

For example, Westpac’s Life account offers an ongoing rate of 4.25 per cent to new and existing customers, provided they grow their balance each month.  

Yet existing eSaver customers are on an ongoing rate of just 1.10 per cent once their five-month honeymoon period ends. That’s a difference of 3.15 percentage points between the two Westpac accounts. 

The RateCity database shows, based on a $20,000 balance (excluding kids and pensioner accounts): 

• 81 banks have at least one ongoing savings rate below 3.50 per cent.
• 11 banks offer at least one savings account with an ongoing rate of 1 per cent or less.

Big four bank savings account rates – today vs before the rate hikes

Source: RateCity. Data accuarate as of 21/04/2023

Tricky terms and conditions can catch some savers out

Opening up a savings account has never been easier thanks to tech-savvy application processes developed by the banks, however, the majority of savings accounts come with reams of fine print that can limit how much interest people actually earn. 

These can include:

• Introductory or ‘honeymoon’ rates for the first 3 to 5 months of opening an account.
• Rate reductions when you hit a certain balance.
• Age criteria.
• Penalties if you withdraw money.
• Minimum monthly deposits to qualify for the maximum rate.
• Requirement to have a connected transaction account which is used regularly.

The RateCity database shows on a $20,000 balance (excluding kids and pensioner accounts): 

• 47% of savings accounts have monthly terms and conditions to qualify for the maximum ongoing rate.
• 12% of savings accounts offer their highest rate for an introductory period only.
• 43% of savings accounts have no monthly terms and conditions or introductory period.

For example, the highest ongoing savings rate available to all adults is currently ING’s Savings Maximiser. However, to qualify for this rate customers need to: 

• Deposit $1,000+ per month into a linked transaction account from an external source;
• make 5 or more purchases on your linked transaction account;
• grow your savings account balance each month;
• keep your balance under $100,000 to receive the maximum rate, and -
• be 18 years and over.

Who is offering the highest interest rates on savings accounts?

The RateCity database shows that of the 10 highest ongoing savings rates currently in the market, 8 have monthly terms and conditions to qualify for the maximum rate. The other two are kids accounts. 

Highest ongoing savings rates on RateCity

Source: RateCity. Data accurate as of 21/04/2023. 

Highest ongoing savings rates with no monthly terms and conditions ($20K balance) 

Source: RateCity. Data accurate as of 21/04/2023. 

RateCity research director, Sally Tindall, said: “Many banks have increased select savings accounts by more than the RBA has prescribed, sending some rates soaring, while others have barely moved an inch.”

“Banks need deposits from households to help fund their home loans. It’s a competitive source of funding for the banks, particularly now wholesale costs have gone through the roof,” she said.

“As a result, banks are increasingly willing to pay a competitive rate of interest to bring in new business, however, some aren’t overly keen on handing out these increases to everyone.

“It’s survival of the fittest in the savings sector. Savvy customers willing to jump through hoops can now get a competitive interest rate on an ongoing basis, while many complacent savers are still getting fleeced.

“Savings rates might be on the rise, but many come riddled with fine print, designed to catch at least some customers out. 

“Sometimes it can feel like you need to pat your head, rub your stomach and hop on one leg just to get a decent rate of interest on your cash.

“While much of the fine print can seem excessive, keen savers should be able to set up their finances to make sure they qualify for the bonus interest each month. 

“Customers who struggle to meet a list of monthly demands from their savings account might be better off looking for one they don’t have to babysit.

“There’s no point signing up to one of the highest rate savings accounts, but then go on to miss out on the bonus interest every other month,” she said.

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