Major banks are dangling inflated bonus interest rates on some of their saving accounts that, after a short period, fall to a fraction of the 1.5 per cent cash rate set by the Reserve Bank.
The Commonwealth Bank, NAB, ANZ and Westpac and its subsidiaries, St George, Bank of Melbourne and BankSA offer bonus savings rates of up to 2.7 per cent.
But the honeymoon bonus period ends in as little as three months after the account is opened, with the rate dropping to as low as 0.5 per cent.
“These ‘now you see them, now you don’t’ bonus rates are a mean trick to play on savers, who are already hurting from prolonged record-low interest rates,” says Kirsty Lamont, research director at comparison site Mozo.
“Unless you are going to move your money every few months, savers should look for accounts that reward certain behaviours with a generous ongoing rate of interest,” Lamont says.
Those opening a savings account are usually required to link it to an everyday transactions account from the same institution.
For the saving accounts that pay an ongoing bonus rate, as well as linking the account to an everyday account, there also are certain conditions to maintain the bonus rate, such as not making withdrawals.
Rosemary Le Febvre and her husband opened NAB iSaver accounts for their three children, who are now in their early 20s, when they started part-time jobs in their teens.
The eldest daughter has a sizeable amount of money in her account earning 0.5 per cent interest, when she could easily be earning more.
The iSaver pays a total of 2.55 per cent which, four months after the saver opens the account, falls to just 0.5 per cent.
“As everybody leads busy lives, it is easy to miss that the interest rate has changed,” Le Febvre says.
The change appears on statements for the accounts but there is no notification by NAB to the account holders to remind them that the interest rate is about to drop.
The 54-year-old mum, who works as a photographer for a building insurance valuer, says there should be such a notification.
Now that Le Febvre is aware of the low interest rate the accounts are paying, she has told her children, who intend to shop around for another account that pays higher interest.
A spokesman for NAB says another of its savings accounts, its Reward Saver, pays a total rate (bonus plus base rate) of 2.4 per cent – as long as the saver makes regular deposits and no withdrawals – and is “the best rate for this product type among the major banks”.
A couple of the bonus savers run by big bank subsidiaries are among the best payers of all — as long as certain conditions are met.
For example, UBank, which is owned by NAB, has a Usaver account that pays a maximum ongoing rate of 2.87 per cent. RAMS, which is owned by Westpac, has a Saver Account that pays 2.8 per cent.
Saving accounts are paying less than they did two years ago, despite the Reserve Bank’s cash rate, at 1.5 per cent, remaining on hold over that period.
Not counting “promotional” time-limited bonus rates, 41 per cent of banks pay an ongoing interest rate of less than 1.5 per cent, figures from Mozo show. Two years ago, that percentage was 20 per cent.
The average savings account rate is only a little higher than the cash rate at 1.55 per cent, down from an average of 1.88 per cent two years ago.
“If your [ongoing] savings rate is under 2 per cent, it’s time to switch to a better account or consider a term deposit,” Lamont says.
Writes about personal finance for Fairfax Media, Sydney, Australia.