Interest rates are up | Here’s the best savings accounts in Australia

Bryce: [00:00:31] Welcome to Get Started Investing feed podcast, where we attempt to answer the most common money and investing questions from the community to help us all become better investors. If you are joining us for the very first time, welcome, we strongly recommend that you scroll up and start at episode one. Now, while we are licensed, we are not aware of your personal circumstances. All information on this show is for education and entertainment purposes. Any advice is general advice only. But with that said, my name is Bryce and as always, I'm joined by my equity buddy Ren. How you going? 

Alec: [00:01:00] I'm very good. Bryce is very excited for this episode. We are talking about something that for the last decade financial advisors didn't want to talk about, investment advisors didn't want to talk about savings accounts. 

Bryce: [00:01:12] Savings accounts? Yes, they have been one of those areas where we've been told not to store our cash for good reason.

Alec: [00:01:19] For good. 

Bryce: [00:01:20] Reason. 

Alec: [00:01:20] 0.01% interest. And yes, there is still one bank in Australia that offers a 0.01% savings account. Chase We will name and. 

Bryce: [00:01:33] Looking. 

Alec: [00:01:33] Forward to. 

Bryce: [00:01:33] Revealing.

Alec: [00:01:34] That interest rates are up. And the question is how should we think about savings accounts in this interest rate environment? 

Bryce: [00:01:40] Yeah, yeah, we're getting a lot around. Are there any good savings accounts out there that are giving a good return? Rumours are that some of them are. Now some of the big banks are now starting to put their rates up not only on the mortgage side but on the savings side as well. So we're going to unpack some of the best savings accounts here in Australia and answer the question, is it good to get your cash in savings now? 

Alec: [00:02:02] But before we do a quick ask from us, our listener survey is out. It's live. You can fill it out. We would really love to hear from you what we do well, what we don't and what we should do more of. It really does help us think about how we are going to take Equity Mates, what content we're going to do and what we're going to do outside of the podcast as well. So please fill it out. The link will be in the show notes. You could pull out your phone, hit the link, and by the time you finish listening to this episode, you will have completed the survey and you'll be in the running to win tickets to FinFest or 500 bucks cold hard cash that you could even put in a savings account. Definitely a prize. That's called a Segway. Let's get on with the other side. 

Bryce: [00:02:45] So you, as you said, Ren. Over the last decade, we have been in an ultra low interest rate environment. Many of the big central banks around the world have kept interest rates almost near zero. And when that happens, the banks where we hold our money also keep their savings accounts rates at ultra low levels. And so it almost becomes pointless. Well, it does become pointless keeping cold hard cash from an investment point of view in a savings account. Yeah. 

Alec: [00:03:14] And the reason that it becomes pointless is because if your bank account is paying 0.01% interest, it's basically the same as stuffing your money in a mattress or under a garden pot, as I should think before I speak. And the reason that we don't stuff our money in the garden or under our mattress is because it doesn't keep up with inflation. Yes. So your purchasing power is lessened over time because you're not earning that two, three or these days six, 7%. You need to keep up with inflation. And unfortunately, most of our savings accounts I'm going to go out on a limb and say all of our savings accounts didn't keep up with inflation for a lot of the last decade, even though inflation was low, interest rates were lower. 

Bryce: [00:04:05] Yeah, that is right. Some people may be sitting there going and saying, well, I had my emergency account sitting in a savings account. Should that have been elsewhere? 

Alec: [00:04:14] No. Yeah. Because different accounts have different purposes. Yes. And your emergency fund is there for an emergency and you accept that you might lose out to inflation, but it's worth it if you get an unexpected hospital bill or you lose your job. Yeah, yeah. Or your podcast start up goes bankrupt.

Bryce: [00:04:36] However, when times are changing and over the last well, really over the last eight months or so, we've seen a significant change in the way that central banks have viewed the role of interest rates. And we've seen. 

Alec: [00:04:50] I don't think that's a positive signs, but they've used it. They just changed the rankings. 

Bryce: [00:04:59] However. And over the last eight months we've seen interest rates rise pretty quickly around the world in most of the major economies. And that is why we are now here discussing whether or not this changes the way we think about the role of savings accounts. Let's just take a look at some of the big economies and how much interest rates have changed here in Australia. This time last year, February 2022, the the cash rate that the Reserve Bank of Australia set was 0.1%, incredibly low historic lows. It is now 3.3. 5%. Yeah. Similarly, over in New Zealand a year ago, it was 1%. They've increased it to 4.25. The United States was 0.25%. It's now up at 4.75%, some significant increases in interest rates in the states. Canada was at 0.25 as well. They're now in the fours at four and a half per cent and the UK has raised theirs from 0.5% to 4%, so some pretty significant rises in interest rates in major economies around the world. We know the story on the mortgage side is that a lot of people are now finding that this is hitting them in terms of their repayments on their mortgage accounts. But banks don't only just increase their rates on the mortgage side, it does in some instances flow through to the savings rate.

Alec: [00:06:19] Yeah, Yeah. And there's a whole conversation about how quick banks to pass on interest rate rises to the mortgage side, to the lending side, and how slow they are to pass them on to the savers in their deposit side. But that's a conversation for another day. But I think the key thing for us, if that frustrates you, there's very little switching costs in moving your savings accounts. You know, if you're got to move some of your other accounts, there may be switching costs when it comes to banks. But moving your savings from bank to bank is pretty easy these days. And so if you're getting frustrated because your bank is not increasing your savings rate, but you're saving your mortgage rate, go up, It pays to shop around literally. And we're going to go through some of the best savings accounts that we could find as of recording mid-February 2023, because they might spark an idea to sack your bank and move. And we're going to talk about the big four and we're going to name and shame one of them, but we'll get to that as well. 

Bryce: [00:07:25] Let's crack into it then. There are two considerations or watch outs when you are shopping around or looking for savings accounts, because the way that banks can present the information can sometimes be a little confusing when you just comparing number number, the two things are introductory rates and bonus rates. Now introductory rates is where you're enticed as a new customer to the bank and they'll give you a particular rate for, say, the first four months or whatever it may be.

Alec: [00:07:55] 4% interest for the first four months and then 0.04% after that. 

Bryce: [00:08:00] Yes. Yeah. So be very careful when it comes to introductory rates. You want to know what it's going to revert to once your introductory offer falls. 

Alec: [00:08:08] I reckon there would be some people out there. You know how people like to move credit cards to get all the points. There would be some people that shop around these introductory rates and there's nothing wrong with full credit. Yeah, I mean, I mean. 

Bryce: [00:08:20] Yeah, it's something that people definitely would do. So there's introductory rates. The second is bonus rates. And so that's when there's sort of conditions attached to the rate. For example, it might be that you need to deposit 200 a month into that account every month for you to achieve a particular interest rate. Yes. Otherwise it reverts to a very low rate. 

Alec: [00:08:42] Yeah. 200 bucks a month for 2% interest. Otherwise 0.02% interest. Yes. Yeah. Like it's just a way to put a big number up in lights and then have a lot of fine print under it. 

Bryce: [00:08:54] Yeah. And almost all banks have these. It is a watch out. It's not like a stay away. If you can manage to hit the requirements on a bonus interest saving account, for example, then they do work out pretty well. But yes, just to watch.

Alec: [00:09:08] Out, I actually think the bonus accounts work well for me psychologically because it just stops me moving money around. Oh yeah, yeah, yeah, yeah. I think in some ways it's an important thing. It's like a disciplining thing for me. 

Bryce: [00:09:21] Yeah. Okay. Nice. Well, I'm looking forward to hearing what savings accounts you have around. But before we jump into the specifics of some of the best accounts here in Australia, we're just going to take a quick break to hear from our sponsors. Brian Before we jump into it, FinFest 2023 is back. Registration is open for early bird tickets. Equity Mates dot com slash Finfest. Leave your name and email and we'll hit you up as soon as tickets go live to give you exclusive access to Early Bird. It is November the 11th here in Sydney. We cannot wait.

Alec: [00:09:52] Yes. So we are talking about savings accounts today because in a high interest rate, in a rising interest rate environment, there are starting to become savings accounts that look attractive. And we've got a list of some of the best in Australia. We're going to compare them to the big four banks. And then we're going to close it out by just quickly talking about how we're thinking about savings accounts in our portfolios and in our money management in 2023. But Bryce, let's not keep people in suspense. Let's go through some of the best caveat, best that we could find. Yes. And that's an important caveat when it comes to these things, because if there are providers out there with better ones, we haven't excluded you. We just didn't find you. So one, get better at SEO and two, hit us up and we'll talk about you at some point. 

Bryce: [00:10:42] Yes, we'll post this in our community and see if anyone else has better rates out there as well. 

Alec: [00:10:46] So let's just go from the top. Let's start with what the best rate we could find. Now, we've split this into sort of two groups. So the first group we're going to go through is the best headline rate. So that includes introductory rates, bonus rates, all that stuff. And then we'll separately talk about the best baseline interest rates. So past the gimmicks, no bonus, right? No introductory rate, what we could find. But let's start with the gimmicks. Let's start with whatever the highest headline rate we could find. Where are we kicking it off? 

Bryce: [00:11:17] Well, then I'm happy to say that it is the account that I use. 

Alec: [00:11:21] Because it is Bryce, perfect match, perfect money. 

Bryce: [00:11:25] And I reckon they've held this mantle for quite a while now because I've had this account for a long time. It's the I Angi savings Maximiser account. So the savings Maximiser account has an interest rate of 4.8%. Now it is one of those bonus interest rates. The base rate is 0.55%, but to achieve the 4.8% you need to deposit $1,000 a month from any external source into that account and then make five card purchases, meaning you actually have to have a linked transaction account. You need to make five card purchases on that transaction account and you need to grow the balance in the savings account. So just how I use this very quickly is pay comes into my transaction account. Then I put everything, all of my savings into my I and a savings maximiser and then I've got both accounts going.

Alec: [00:12:20] So when do you reckon you open this account? I've got to know when. Like when do you reckon you opened it. 

Bryce: [00:12:26] Oh, four or five years ago.

Alec: [00:12:29] Has there ever been a month where you haven't hit those three conditions to get the bonus interest. Not, of course not. All right. Nice. I reckon a lot of people will have read Barefoot and a lot of people will have this in a savings maximiser account. So I think a lot of people will be reassured that it was the highest one we could find. But we should say it's not the only savings account with a four in front of it these days. A couple of the other ones we found this might go down as one of the biggest differentials between bonus interest rate and base interest rate, The Virgin Money Boost Saver, 4.6%. Bonus 0.05% base. [00:13:12][42.8]

Bryce: [00:13:12] So that means if you don't hit the bonus requirements, which is depositing $2,000 a month plus five purchases with your go account, another linked transaction account, you only get 0.05%. [00:13:23][10.4]

Alec: [00:13:24] Well, let's put it another way. If you've got $100 in the account, if you hit the bonus rate, you get 4.60 a year. If you don't hit the bonus, you get $0.05. Yeah. 

Bryce: [00:13:35] Yes. 

Alec: [00:13:36] So, so what are the conditions? Deposit $2,000 a month and make five purchases with your connected transaction account. And so that's going to be a recurring thing you say with a lot of these savings account, they give you a good bonus interest rate and then they actually make their money from the transaction account. Yeah, so that's similar. 

Bryce: [00:13:57] So the number three was the Macquarie Savings account. Now this had an introductory offer of 4.5% and then it reverts to 3.7% base rate. So after the first four months that you are with Macquarie, you get four and a half and then it goes down to 3.7. So it's actually not a bad base rate, 3.7, it's just an introductory. 

Alec: [00:14:16] Another one with a good introductory rate. The HSBC Everyday Savings account 4.25% introductory rate for the first three months and then it converts to 2.55%. 

Bryce: [00:14:30] And then closing out is the they are Q future. Save her account. Love to say back on that. I used to work for them and they did have an epic bonus savings account. 

Alec: [00:14:38] And when Bryce says it used to work for them, I mean, it's the loosest definition of work possible. You put on the uniform for them. 

Bryce: [00:14:47] Come on. I worked there it was. It's 4.75% bonus. It does revert to 0.05% if you don't deposit $1,000 every month and make five transactions. But it is only available if you are under 35 years old. Interesting condition, but they go Ren.

Alec: [00:15:05] Well, I guess it's like a lifetime customer value play. Yeah. Get people when they're young. 

Bryce: [00:15:10] So there are a few banks out there, at least five there that are offering interest rates of 4% or more.

Alec: [00:15:16] So a few key takeaways from me. First of all, none of the big four banks are in that list, so it pays to shop around and look outside. The biggest number two, if you're happy to deal with a bonus rate or an introductory rate, you should be looking for something with a four in front of it these days. So I enjoy 4.8, pay 4.75 and 4.6. That's sort of high watermark at the moment. And you would expect to see that go up if interest rates keep rising. So that is probably my two key takeaways, looking at that list, we should. 

Bryce: [00:15:51] Caveat this is excluding term deposits because that's a whole nother conversation. 

Alec: [00:15:55] Yes. It's literally a different financial product. 

Bryce: [00:15:57] Yes. So forget the bonuses and gimmicks. Let's talk straight up interest rates. If you didn't want to deal with signing up to a new bank or hitting minimums each month. Number one is Macquarie Savings Account, which we spoke about 3.7%. Base. Away you go. Yeah. Don't have to worry about anything. Put the money in and take it out how you wish. 3.7%. And then Citibank online saver is 3.35%. They have a four month intro of 3.75%. But again, 3.35. Away you go. 

Alec: [00:16:28] Yeah. So if you want to maximise your bonus interest rate, you're looking at something with a four in front of it. If you just want the best no gimmicks base rate, you can find something with a three in front of it out there. That's pretty good. Yeah, it's better. It's better than what it was at the start of the start of last year. Definitely. 

Bryce: [00:16:47] Absolutely. All right. So then we had a look at the big four, because they're always the ones that we find most people are with in some way, shape or form. 

Alec: [00:16:55] Yeah. This is why it pays to switch. 

Bryce: [00:16:56] Yes. And to be honest, a lot of them well, most of them kind of suck. They're not great. Not surprising they're either, though. So Commonwealth banks, net bank saver is 1.6%. 

Alec: [00:17:10] I think they do have some bonus as well. But yeah, I think that base rate is 1.6%.

Bryce: [00:17:15] That's unfortunate. It's so great that I think she's with Net Bank. She also is with IHG but I need to get on that Westpac life savings account and then they have a bonus rate of 3.75%, but their base 1.35. So again starting with a NAB. 

Alec: [00:17:31] Yeah, I mean that bonus isn't bad, but it's just like there are better bonus accounts out. 

Bryce: [00:17:36] There. Yeah. Who as we said, anything with a four in front of it should be the target for a bonus. NAB have two that are both pretty average so the reward saves 0.1% base 3.25% bonus. And then the eye saver has a really dismal 1.1% base. 

Alec: [00:17:55] Yeah. With an introductory offer of 3.75 for four months. But then Bryce, we said we were going to call out one of the big four banks that had the worst interest rate. We came across A and Z, they have two. So the first one, the online saver account, which is a bonus account, you get 2.4%. The online saver has an introductory offer of 2.4% for three months and then it drops to 0.6%. But then the worst account that I could find in terms of base rate, the progress saver, the bonus rate of 2.5%, if you deposit ten bucks a month and don't withdraw. But if you don't do that, 0.01%. 

Bryce: [00:18:44] Unbelievable. Unbelievable. That's why it pays to shop around. Don't be lazy and think that whatever bank you currently with is the best, right? 

Alec: [00:18:55] So that's a list of some of the best that we could find at the moment. And it is really important to stress that this is a moment in time exercise because, you know, banks moving these around as the Reserve Bank moves interest rates, but also as they, you know, try and shake up their offer to be more competitive. You know, if ANZ say a massive exodus of savers going to ANZ, then they might they might do. 

Bryce: [00:19:20] Something about it. 

Alec: [00:19:20] Yeah, tension. But I guess the question Bryce for you is how are you thinking about savings accounts in your portfolio? Are you changing anything as interest rates change? 

Bryce: [00:19:32] No. I'm not. That's just because I'm lucky, I guess, that I've got the top savings account that we could find in Australia. 

Alec: [00:19:41] But I guess, I guess, you know, a year ago I think it might still have been a top, but it was probably like one and a half percent. 

Bryce: [00:19:48] Now it was higher. It was like mid-teens, early thirties. 

Alec: [00:19:51] Okay, Well, so.

Bryce: [00:19:52] I guess what it has done, it's made me feel a little bit more comfortable about keeping larger sums of cash in an account. While inflation at the moment in Australia is still higher than the rates you're getting. I do actually get a bit more of a return on my money having it sit in there. So things like, you know, we're saving to go to your house, emergency fund keeping powder dry for the stock market, having those larger sums of cash. I mean, psychologically having a higher interest rate does make you feel a little better. But it does. It's not changing the way I'm not shopping around or anything like that. Yeah. 

Alec: [00:20:30] I think yeah, I'm very similar. I think there being a savings accounts out there that you can always get 5% annual return. I know we don't like the fact that interest rates are rising and the stock market's falling and the housing market's falling and all of that. But it's actually just a really healthy thing for the economy for us to have an option where we can safely put our money in a savings account and get a decent return that beats inflation because, you know, saving up to buy a house is a classic example. For the last ten years, people who are saving money to buy a house would were asking, should they put it in the stock market to get a return and stuff like that. And the answer to that is generally no, because the risk of losing your money in the short term is high. Well, now there's options and now you can put it in a savings account. And similarly, as our parents get older and they're thinking about retirement and stuff like that, savings accounts are now an option for earning some return on cash. Yeah. So for me, I'm thinking about it similarly for you. The biggest thing that I'm going to change because I'll put my hand up and be honest, I've got multiple savings accounts with Commonwealth Bank and the research for this episode has sparked that. I'm going to move. Follow in your footsteps. Follow those barefoot footsteps over to Iron J and put the money that I'm saving for a house deposit in my. I enjoy my new savings. 

Bryce: [00:22:07] Well, there you go. 

Alec: [00:22:08] Not an ad not sponsored purely based on the numbers and the fact that Bryce is a pretty good example to follow.

Bryce: [00:22:15] There you go. Some practical outcomes from this. Love it. But that does bring us to the end of this week's episode. We will, as we said, share this in our group. Great to hear from the community how they're thinking about savings accounts and if there are better accounts out there. We'd love to hear from you and share it with the community. Ren Next week we're answering the question around what actually goes into a budget template. And we're going to bring some clear examples of what we put in our budget template, what the you're in good company girls have in their budget template and see if we can build the best budget template possible. 

Alec: [00:22:48] Sounds good. 

Bryce: [00:22:49] Can't wait. We'll pick it up next week.