Savings grow slowly as term deposits remain low

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SAVERS with cash stashed in the bank are continuing to receive low returns and some lenders have already started to drop their interest rates.

While homeowners are revelling in the Reserve Banks cash rate drop to 1.75 per cent, those looking to grow their savings are becoming increasingly frustrated.

Deposit marketplace Cashwerkz estimated savers could be losing interest on up to $3.8 billion of term deposits every year simply by not paying attention.

Lenders attract customers with an attractive 12 or 24 month rate but, when that term expires it usually drops to a nominal interest rate so to maximise your income you need to move it elsewhere.

Data from financial comparison website Canstar found some smaller lenders including the Bank of Sydney and Qld Police Credit Unit have dropped their interest rates on some term deposit accounts recently so its critical borrowers sit and up take notice.

Macquarie Bank even got in early by reducing its term deposit rates the day before the last recent cash rate decision with decreases ranging from five to 20 basis points.

We expect to see many institutions cut term deposit rates,’ says Canstar spokeswoman Justine Davies.

At-call (online) saving deposit rates are already so low that in many instances theres nothing more to cut.

Canstars database shows on a $10,000 deposit the average interest rate on a six month term deposit is 2.59 per cent, a 12 month term deposit is slightly higher at 2.69 per cent while an online at-call savings account pays an average of just 1.9 per cent.

Online savings accounts allow customers to have flexibility and access their funds at any time without penalty but often include conditions which dont suit everyone.

Cashwerkzs chief executive officer John Edginton says term deposits have long been a popular savings mechanism, particularly for older Australians, but he says they have definitely taken a tumble.

People need to continually watch what rate they are getting and when it expires rather than just rolling it over, look at what else is out there in the marketplace,’ he says.

Theres also a lot of money in savings accounts that is potentially earning no interest or a very small fraction.

He suggests savers mark their term deposit expiry date on their calendar and make sure they review it before it rolls over to a lower interest rate.