RBA rate cut: What should I do with my savings now?
The average saver will earn around $100 less interest for the year after today's rate cut.
It's official - the RBA has finally cut the cash rate from 4.35% to 4.10%, after years of nothing but cash rate increases.
This is excellent news for people with mortgages as banks will begin to reduce home loan rates, saving the average borrower $100 a month.
But banks will also start cutting their savings account rates, which isn't great if you're trying to save.
How much less interest will I earn on my savings?
This will depend on how much you've got in your savings account and what interest rate you're getting.
The average Australian has around $32,000 in cash savings. Let's assume you're depositing $1,000 a month and you're currently getting one of the highest rates on offer at 5.50% p.a.
If your savings rate was cut to 5.25% p.a. the interest you'd earn over a year would fall from $2,112 to $2,014 - a drop of $98.
If your savings balance is higher, the difference in your interest earnings will be even bigger.
Savings balance | Monthly deposit | Annual interest earnings at 5.50% | Annual interest earnings at 5.25% | Difference |
|---|---|---|---|---|
$20,000 | $1,000 | $1,435 | $1,369 | $66 less |
$40,000 | $1,000 | 2,563 | $2,444 | $119 less |
$50,000 | $1,000 | 3,128 | $2,982 | $146 less |
$100,000 | $1,000 | $5,948 | $5,671 | $277 less |
What should I do with my savings?
Economists are predicting we might see 3 or 4 cash rate cuts this year. This means the interest rates offered on savings accounts will be constantly changing.
The best thing you can do is compare your savings account often to make sure you're always getting one of the highest rates in the market.
Here are 3 of the highest savings rates right now:
1. Ubank Save Account
Earn 5.50% p.a. on balances up to $100,000 when you deposit $500 each month. If your balance is between $100,000 and $250,000 you can earn 5.00% p.a. by meeting the deposit condition. You can make withdrawals and still be eligible for the bonus interest.
2. ING Savings Maximiser Account
Earn 5.50% p.a. on balances up to $100,000. To earn this rate you need to deposit $1000 a month, grow your balance during the month and make 5 transactions from your ING Orange Everyday Account.
3. BoQ Future Saver Account
Earn 5.50% p.a. on balances up to $50,000 when you deposit $1000 and make 5 transactions during the month from the linked Bank of Queensland transaction account. You also need to be aged between 14 and 35.
If these accounts aren't right for you, check out a full list of high interest savings accounts to find one that better suits your savings style.
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