Rate rises and your savings

With interest rates rising, a lot of the focus has been on the impact to home owners. On the flip side, the increase may be welcome relief to some deposit holders as they start to see their savings grow for the first time in several years.

That’s because changes to the official cash rate often impact all rates in the market – including interest rates on both loans and deposits offered to customers. So if you have a term deposit or a savings account, an interest rate increase could mean you start to see a higher return on your savings.

How do rate rises work for savings?

The official cash rate set by the Reserve Bank of Australia (RBA) serves as a benchmark for interest rates on funds which are lent or borrowed in financial markets. Lenders use this as part of their decision-making when setting their own interest rates.

After historic lows for so long, the RBA’s decision to increase the cash rate for the second time in June is predicted to be the first of many to come over the coming year or two as the economy begins to stabilise after the impacts of Covid. A higher cash rate is typically a sign of a healthy economy, encouraging more people to save rather than spend as employment rates and the cost of goods increase.

Some banks and lenders have already passed on the rate increase to select savings and deposit accounts, with experts saying this is a positive sign and could put pressure on other banks to follow suit.

So if you’re looking to get a good return on your money, now is a great time to shop around and compare the rates on offer.

What to look for in a savings account

Savings accounts can be a bit set and forget in general – so you want to make sure the one you choose is maximising your money with the least amount of fees and charges. Here’s what to look for when reviewing your accounts.

1. Think about your lifestyle. If you want easy access to your money, or want to save for an emergency fund or a financial goal such as a home deposit or a holiday, you might find an everyday or online savings account with a high interest rate will be the best option. You can make deposits, but also access your money if necessary.
   
   
2. Consider long-term saving goals. If you have an eligible amount you’d like to put away, a term deposit that ‘locks’ in your money for a set time (such as one year to five years) at a set interest rate may suit you better. Just be mindful that there can be penalties to take your money out before the agreed term.
   
   
3. Seek out age-appropriate accounts. If you’re looking for an account for a child or you’re an adult under 25, you may find accounts for these age groups with higher interest or lower fees, so it’s worth investigating what’s on offer. The right account with a higher interest rate could help you grow your money faster.
   
   
4. Compare interest rates carefully. There’ll be lots of competitive rates out there right now, so it’s a great time to see what’s on offer elsewhere – and talk to your current bank to see if they can give you a better rate on your existing savings accounts.
   
   
5. Read the fine print. When shopping around, be aware of savings accounts with amazing introductory or promotional rates – they’re usually only offered for a short period before the interest drops to a lower base rate. Similarly, look at the fees and charges; you’ll find fee-free accounts around, but some accounts may charge you for monthly or withdrawal fees.
   
   
6. Check the conditions. Lots of savings accounts offer what’s called ‘bonus’ interest, but only if you meet the account conditions. These might involve depositing a set amount in the account each month in order to earn the interest. Or there may be limitations on the account, like you can only make a certain number of withdrawals if you want to qualify for bonus interest (or avoid charges).