Should Aussies reconsider their loyalty to bonus savings accounts?
Savers sick of the long list of growing conditions on bonus savings accounts should reconsider their loyalty, with Mozo analysis finding that the average term deposit interest rate has jumped 155 basis points since May, from 0.72% to 2.27%.
“In a rising rates environment, it is important for savers to consider their options when choosing where to grow their nest egg,” said Tom Godfrey, Mozo spokesperson.
Mozo’s analysis shows that following the May RBA rate rise, the average bonus savings rate has increased 62 basis points, from 0.54% to 1.16%, while the average base savings interest rate has moved a dismal 17 basis points, from 0.12% to 0.29%.
“Aussies attracted to bonus saving accounts should be wary of special rate conditions. If they are not met, savers could be bumped back to a significantly lower rate,” said Godfrey.
More than three-quarters (79%) of the bonus savings accounts in the Mozo database have two or more special rate conditions. Conditions range from depositing a minimum sum into the account each month to making no withdrawals or a set number of linked debit card transactions.
“A common condition is to increase the balance by a set amount each month and make no withdrawals. While this might be the fastest way to grow savings, inflation and rising cost of living pressures might leave some in a position where they cannot make consistent contributions.”
Mozo’s analysis shows that depositing $10,000 in the leading 12-month term deposit, from Judo Bank, could accumulate up to $345 in interest. While going with the leading bonus savings rate, from ING, would grow the original sum by $260 if all three conditions were met.
Conditions include depositing at least $1,000 into a personal ING account, making at least 5 settled card purchases using the linked ING debit card and growing the account balance higher at the end of the month than it was at the end of the previous month. If conditions were not met for the full 6 months, savers would be bumped back to the base rate of 0.05% and only see $5 of additional interest.
“It is important to keep in mind that in order to receive the interest on a term deposit, savers will need to leave the money locked away until the account reaches maturity, but they will still be able to withdraw the money and forfeit the interest if needed,” added Godfrey.
“When it comes to deciding how much to lock away in a term deposit, and for how long, Aussies should take into account that interest rates will continue to rise if the RBA decides to hike again over the coming months.”
“A good option could be to not put all their eggs in one basket, such as splitting their savings between different length term deposits and a bonus savings account,” Godfrey concluded.
