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Westpac’s Savings Rate Cuts: What It Means for Savers
In light of the Reserve Bank of Australia’s (RBA) recent cash rate reduction, Australians with savings accounts face the prospect of diminished earnings on their deposits. Westpac, the country’s second-largest bank, has announced that it will fully implement a 0.25% decrease in rates for its main savings accounts, effective from May 30. This marks a significant shift, especially as mortgage cuts for variable borrowers won’t take effect until June 3.
Currently, Commonwealth Bank, NAB, and ANZ have yet to disclose their changes regarding savings accounts, although ANZ has indicated it is reviewing various interest and deposit rates.
Impacts of Rate Cuts
Sally Tindall, from Canstar, has pointed out that the absence of announcements from other banks doesn’t necessarily bode well for savers. She expects that many will see reductions in their savings rates following the cash rate cut, stating, “While mortgage customers may celebrate, savers could be left disappointed, as cash rate reductions historically lead to lower savings rates.”
Westpac’s adjustments will result in its Life account rate falling to 4.50%, while its eSaver introductory rate will also drop by the same margin, leaving it at 4.50% with an ongoing rate of just 1%. Interestingly, Westpac will maintain the 5% rate for customers aged 18 to 29 on their Life accounts.
Tindall noted that although the news is disappointing, Westpac’s transparency about these changes is commendable. She suggested that rival banks should similarly inform their customers regarding impending changes to their savings rates.
Record Savings and Inflation Concerns
Despite the looming rate cuts, Australian households are sitting on record savings, totalling $1.6 trillion as of April, as reported by APRA. However, Mark Zukerman, director at Vado Private, warns that many may earn less than inflation due to current interest rates on savings accounts averaging about 1.5%, with term deposits yielding around 3.1%.
Zukerman remarked on the situation, “With inflation at 2.4%, many savers are at risk of earning very low returns, potentially dipping below zero once inflation is factored in.” He emphasised the importance for investors to reconsider hefty allocations to cash, balancing this with the associated risks.
As inflation is anticipated to settle within the RBA’s target range of 2 to 3%, there may be temporary increases in the Consumer Price Index (CPI), particularly with the cessation of cost-of-living measures. This could further erode real returns on cash investments.
Shopping for Better Rates
For those seeking to maximise their returns, Tindall suggests shopping around as some banks still offer attractive rates. Currently, about a dozen institutions provide savings rates of 5% or more. However, should these banks follow suit with the rate cuts expected in the near future, only four — ING, Move Bank, BOQ, and Westpac — might remain in that bracket.
Tindall cautioned savers to remain proactive, regularly comparing rates and being willing to switch to more favourable options, as maintaining loyalty may not yield rewards in this economic climate.
In conclusion, while the RBA’s rate cut brings some relief to borrowers, it simultaneously casts a shadow over savings account holders. The forthcoming months will be crucial as banks like Westpac lead the charge in rate cuts, prompting a need for savers to stay vigilant and informed about their options.
