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Australian Savers Brace for Interest Rate Cuts
As the Reserve Bank of Australia (RBA) is poised to announce an expected cut to interest rates, Australian savers are likely to face unfavourable conditions regarding their savings. Major banks such as NAB and Westpac have already begun reducing rates on term deposits ahead of the anticipated cut.
Current Bank Rate Adjustments
Recently, NAB reduced its leading 7-month term deposit rate by 10 basis points, bringing it down to 4.10%. Similarly, Westpac has adjusted its rates for an 11-month special offer, lowering the rate by 10 basis points to match NAB. Deposits initiated online are seeing slightly higher rates of 4.20%.
Kylie Moss, a personal finance expert from Mozo, remarked that these amendments in term deposit offerings align with the expectation of upcoming rate cuts by the RBA. So far, 44 banks have decreased their term deposit rates compared to only 10 that have seen increases.
This trend among major banks follows a 25 basis point cut by the RBA in February, which led to corresponding rate reductions across key savings accounts. Notably, some banks, including ANZ, have enacted additional cuts on their savings account interest rates since that time.
Importance of Monitoring Savings Rates
Moss emphasised the importance of closely monitoring terms related to bonus interest rates. The Australian Competition and Consumer Commission (ACCC) revealed that an overwhelming 71% of savers missed out on the bonus rate simply by failing to meet the account requirements. This situation highlights the necessity for savers to understand and adhere to the conditions attached to their accounts to maximise returns.
Currently, ING holds the position of offering the most attractive savings rate at 5.40%. Prior to the RBA’s cash rate cut in February, ING’s rate was maintained at 5.5%, reflecting a mere 10 basis point reduction. However, savers who do not meet specific criteria for receiving the bonus interest may see their rates drop dramatically to as low as 0.05%.
Bank Expectations for Future Cuts
In anticipation of the RBA’s announcement, all four major banks (Commonwealth Bank, Westpac, ANZ, and NAB) expect the rate cut to occur. Analysts predict that the RBA will implement either a standard 25 basis point cut or, in the case of NAB, a more significant 50 basis point reduction. Here’s a summary of the predictions from the major banks:
- CBA: Expecting three cuts in May, August, and November, lowering the end-of-year cash rate to 3.35%.
- Westpac: Forecasting similar three cuts to also arrive at a cash rate of 3.35% by November.
- NAB: Projecting five cuts, including a notable 50 basis point reduction in May, culminating in a cash rate of 2.60%.
- ANZ: Anticipating three cuts leading to a cash rate of 3.35% by the first quarter of 2026.
While these cuts will provide relief for mortgage holders, they will further disadvantage savers. A recent analysis by Canstar indicated that a 25 basis point cut could lead to an average borrower saving approximately $91 on monthly repayments related to a $600,000 loan with 25 years remaining. If three rate cuts were implemented, repayments could be reduced by an estimated $268.
Conclusion
The anticipated interest rate cuts pose a significant risk for Australian savers, who already face reduced returns on their bank deposits. While the competitive landscape of the savings market provides options for savers, it’s crucial for them to remain vigilant and informed about the shifting rates. Adapting strategies to maximise potential returns whilst being prepared for changes is essential in this evolving financial environment.
