Close to 5%: Where savers can find value as rates fall

For many Australians earning interest on their savings, news of another rate cut from the RBA last week will hardly have been greeted with cheer.

At the same time as banks have been rushing out to announce home loan rate reductions, a smaller number have started notifying savers that their savings rates are about to be slashed.

"We've seen 13 or so banks confirm that they're cutting savings rates so far. Some of the larger banks are Westpac, Macquarie Bank, Bank of Queensland and NAB," says Alison Banney, money expert at Finder.

"It's only been a week since the RBA rate cut and banks are often not as quick to confirm their savings cuts as they are for home loans, which is obviously better news to share. So we do expect to see more cuts come through in the next couple of weeks."

The latest round of rate cuts will add to those already imposed on savings accounts so far this year after cash rate reductions in February and May.

"At the beginning of the year in January the average savings rate was around 3.00%, but now it's closer to 2.50%," Banney says.

"Some accounts have been cut more than others, and some haven't had any cuts because they were lower to begin with, but we have seen a slow decline in savings rates."

Can savers benefit from switching accounts?

While savings rates have dropped across the board in recent months, not all savings accounts are made equal. According to Banney, there are a handful of banks offering up rates well above the average.

"There's such a difference now between the top of the market and the average. The best rates in the market are still closer to 5% - so much higher than the 2.50% average."

MOVE Bank, ING and RACQ Bank are among those with the highest ongoing bonus rates at present.

As Banney points out though, with the market still in flux after the rate cut, savers may want to wait for the dust to settle before rushing to switch.

"Look at the market and see what the other banks are doing in a couple of weeks' time, because you don't want to swap to an account just to have the bank cut its rate the day after you swap."

For those who are able to move their savings to an account with a more generous rate, the difference in interest can be substantial though.

"Finder data shows that the average savings balance is around $35,000," Banney says.

"So, assuming that's your balance, by switching to an account with 5.00% interest versus 2.50% you could make an extra $1,000 interest over the year.

"That's free money, so it definitely is worth it if you can meet the conditions."

Finding the right savings fit  

Earning a competitive rate is clearly important for those looking to maximise the return on their savings, but Banney says that being able to meet any account conditions is arguably even more important.

"For a lot of the accounts with the highest rates in the market, the base interest rate - which is what you get if you don't meet the conditions - is often zero. You will literally earn no interest."

"So, if you can't meet the conditions consistently every month, you're probably better off going for an account with a slightly lower rate. You'll still want it to be competitive, but where the conditions are easily met."

Given the hoops that some customers need to jump through to earn bonus rates, Banney says that an alternative could be opting for an account with a high base rate and no strings attached.

"There are a few really good options out there for people who don't want to meet any conditions. You might sacrifice a bit of interest compared to the top bonus offers, but they can make life easier.

"I mentioned Macquarie Bank before who have cut the ongoing rate on their savings account already, so it's now 4.25%.

"That's a little bit lower than the very top bonus rate offers, but the great thing about it is there's no conditions to meet - you just get that rate every month.

"There's a couple of accounts like that as well. Bank of Queensland have one which is 4.05% ongoing and AMP has just released a similar one as well."

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