NICOLE PEDERSEN-MCKINNON November 19, 2011
Cashed up: Banks are no longer competing so fiercely for our savings. Photo: Frances Mocnik
IN ALL the excitement about the cuts in interest rates, there is one group that is typically overlooked: savers.
While the recent 25-basis-point reduction was great news for mortgage holders, it was the opposite for those with cash in the bank.
And thanks to seemingly endless sharemarket volatility and growing economic uncertainty, that's a lot of us. Although traditionally a nation of borrowers, our savings rate is at its highest for a generation.
We've had it good the past few years as the Reserve Bank sought to deflate a potential housing bubble by hiking rates to among the highest in the world.
At the same time, banks keen to guarantee their funding in the wake of the credit crack-up offered ever-more attractive deposits deals.
The tide has now turned – the worsening situation in Europe makes it likely we'll have further official cuts and cashed-up banks are no longer competing so fiercely for our savings.
NAB's failure to pass on the full 0.25 percentage point cut to its mortgage holders generated lots of negative publicity; not so the 0.4 per cent cut its online arm, UBank, made to its USaver savings account.
And late last week Virgin Money cut its standard online rate by even more: 0.45 per cent.
Other institutions have slashed rates further than the Reserve, too. Citibank cut by 0.35 per cent, while Victoria Teachers Credit Union and ME Bank both cut by 0.3 per cent.
But here's the big kick in the teeth: it looks as if the limited-offer "bonus" rates institutions have been paying to get us through the door are about to end.
Credit Union Australia did not renew the deal when its latest offer ended as scheduled this month, while on Friday RaboDirect withdrew its ongoing bonus rate.
This is the first such move by a large savings provider and may prompt others to follow suit.
The upshot is the online savings landscape has changed entirely and if you were in the best product previously, you may be no longer.
Comparison company Mozo says the top products are now HSBC's Serious Saver with a 6.2 per cent bonus rate (falling to 5 per cent after four months provided you make no withdrawals), Virgin Money's Virgin Saver 6.12 per cent (falling to 4.9 per cent after four months) and UBank's USaver 6.11 per cent (ongoing with an automatic savings plan of $200 a month or more).
So, for now, your best option longer term, assuming you can meet the monthly savings requirement, is actually UBank.
Note that the name synonymous for many with online savings accounts, ING Direct, is not on the list. Its 6.1 per cent for the first four months, falling to 4.75 per cent, puts it fourth.
Can you get more if you lock your money away in term deposits? Not any more – these have been falling in anticipation of rate cuts since August. Mozo says the best over three years are Teachers Credit Union with 5.9 per cent, bankmecu, Community First and Victoria Teachers Credit Union with 5.8 per cent and AMP with 5.75 per cent.
You'll need to get in quick for these deals, though. Of course, you could always put your money in big-bank shares instead. They're yielding 6.96 per cent – 9.94 per cent when grossed up for the franking credits that dividends carry – thanks to falling stock prices and still-high dividends.
But you'll only come out ahead if prices at least maintain current levels.
In my column on October 16, "Claim those bonus bucks", an error appeared. Trailing commission of 0.4 per cent on a $50,000 managed fund is not $2000, as published, but $200. However, rebates are also available on upfront commissions, which are an average 4 per cent and would therefore be $2000. My apologies this was not clear.