Last year’s sledgehammer to the global economy has shifted the Aussie trend of spending to savings mode.
But while the nation’s savings have increased, new research shows we aren’t shopping around to get the best interest rate on that money.
Mozo’s latest report on the state of the nation’s savings found Aussies are missing out on higher savings rates due to a belief that the big banks are the safest place to put their hard-earned cash.
Half of Australian savers surveyed by the comparison site believe the big banks are the safer place to keep their money, but that’s not necessarily where the best savings are.
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“With the recent news of a neobank going under, it’s perhaps unsurprising that many savers are willing to forgo a better return on their money in exchange for the perceived security of the top end of town,” Mozo director Kirsty Lamont told news.com.au.
Widespread loyalty to the big four banks persists, with 80 per cent of those surveyed electing to keep their cash with either NAB, Commonwealth, ANZ or Westpac.
Less than 4 per cent of Aussies put their money with ING even though it is the bank with the top savings rate at 1.35 per cent.
When it comes to the big four banks, NAB is offering the highest ongoing rate at 0.55 per cent with the big bank average rate at 0.21 per cent.
However, Westpac by far has the top ongoing savings rate for those aged under 30 at 3 per cent.
“Your best option is always to compare rates and switch to get the best possible return on your hard-earned cash,” Ms Lamont said.
“As ever with personal finance products your best option is to compare all rates and move your money to where you can get the best value.”
WHY THE BIG 4?
Familiarity is a key reason people persist with the big banks, with Mozo’s report finding 44 per cent of those surveyed choose to keep their savings with the big four because “they always have”.
Smaller banks including 86 400, ME, MyState Bank and Macquarie are all offering rates up to 1.2 per cent but only 7 per cent of Australians believe it is more advantageous to bank with a smaller bank during the current economic climate.
Ms Lamont says that favouring the big banks could be detrimental to your savings strategy.
“With savings rates continuing to tumble, fear and familiarity are the last things you should be banking,” Ms Lamont said.
“Although you might not have heard of some of the neobanks and smaller deposit takers, there’s nothing to fear by moving your money to them to get a better return on your savings,” she added.
While a majority of Australians consider the big four banks to be a safer place to store their savings, deposits in Australia under $250,000 are protected by the government deposit guarantee scheme regardless of whether your money is with the nation’s biggest deposit takers or a smaller online bank.
The report also revealed around one in three savers stay with the big banks because they have other products with them and just over a quarter believed they were more competitive.
There have been 224 cuts to savings accounts since the RBA last cut rates in November 2020 with the big four banks’ average ongoing savings rate now at 0.21 per cent.
Westpac and CBA became the first big banks to cut savings rates this year, with Westpac slicing 15 basis points off its savings accounts and CBA cutting 5 basis points.
PANDEMIC BOLSTERED TRUST IN BANKS
According to Finder’s consumer sentiment tracker, around two-thirds of Australians – 67 per cent – trust small banks. In comparison, a little over half (56 per cent) say they trust the big four.
However, trust in banks overall has increased since the beginning of the pandemic. In September last year, the six-month rolling average showed 55 per cent of Australians trusted the big four banks, a substantial increase from 49 per cent in March. Over the same period, trust in small banks increased marginally from 64 per cent to 66 per cent.
“Australians are more sceptical of the big banks compared to smaller financial institutions, but what is interesting is that trust in the big banks actually increased during COVID,” Kate Browne, personal finance expert at Finder, told news.com.au.
“This is mostly thanks to the response from the big banks during the pandemic, where mortgage deferrals and hardship programs were readily available for struggling customers.
“It will be interesting to see whether this increased level of trust remains once the deferral period ends in March,” she said.
Surprisingly, Baby Boomers and Gen X are the least trusting of big banks, with just 44 per cent saying they trust the big four, compared to 70 per cent of Gen Z and 63 per cent of Gen Y.
Gen X are the most sceptical of small banks, with 62 per cent placing trust in these institutions compared to 71 per cent of Gen Z and 70 per cent of Gen Y, according to Finder.
WHICH BANK?
“Overall, big banks tend to have lower savings interest rates, along with short introductory periods or monthly account conditions,” Ms Browne said.
“The exception is currently Westpac’s Life account, which has the highest savings rate on offer at 3 per cent, provided customers are aged between 18-29 and meet certain account criteria each month.”
“Neobanks tend to have the highest interest rates across the board, with Volt, Up, and 86 400 all offering variable interest rates above 1 per cent per annum,” she said.
“Although neobanks are relatively new in Australia, low overheads mean they can offer a better user experience, more competitive rates and innovative features,” Ms Browne said.
“This makes neobanks an appealing option for younger customers who are tech-savvy and comfortable with digital banking.”
However, neobank Xinja’s recent decision to exit banking has sent shockwaves through the industry.
“Whether the other neobanks are able to withstand the financial impact of the pandemic remains to be seen,” Ms Browne said.
Read related topics:ANZCommonwealth BankNABWestpac
