How will the June RBA rate hold affect your savings?
Today's rate hold serves as a reminder that you may need to work a little harder to maximise your savings.
As expected, the Reserve Bank of Australia (RBA) didn't adjust the cash rate today, holding official rates at 1.75%.
A rate hold generally means that the interest rate on your savings stay the same. But with interest rates at an historic low, how do you know you’re still getting a competitive deal?
Banks and authorised-deposit taking institutions usually the RBA's rate when setting interest rates. In last month's May announcement, a rate cut saw many banks dropping their savings accounts rates by 25 basis points. Plenty of banks also saw the May rate cut coming. finder.com.au saw the highest rate in its comparison drop from 3.60% p.a. to 3.40% p.a. following last month's cut.
For those with a savings account, a rate hold could mean you’re not really progressing on your savings. Even if there is only a slight difference in interest rates, it can make all the difference to your balance as compound interest and incentives can push your balance that little bit higher.
It’s important to regularly compare savings account and understand the terms and conditions attached. Banks are currently offering up to 3.40% p.a, but there’s a catch if you want that rate. It only lasts for the first 4 months and then reverts to the average rate. The more often you switch, the more you can receive the bonus rate.
If you’ve locked in a competitive rate on your term deposit you can rest assured that rate will hold until it matures. Term deposits are useful in protecting yourself against interest rate cuts, though when interest rates rise you won't immediately be able to take advantage of the changes. In the current interest rate environment, investors are still likely to be tempted to lock in a term deposit for the next 3 to 6 months to protect themselves from the predicted second rate cut in 2016.
And it certainly looks like bad news for savers over the coming months, with 45% of experts in our RBA survey believing that interest rates will fall in August 2016.
Being actively involved with your savings can help you get a better interest rate. Bonus saver accounts award you with a bonus interest rate for every month you can meet their terms and conditions. The most common example is depositing a regular amount per month and making no withdrawal.
If you can’t commit to making regular savings every month, then you may want to consider switching savings accounts on an a regular basis. Most savings accounts offer a honeymoon rate for lasts for the first 3 to 4 months. The catch is you can generally only receive the bonus rate once per person, so you’ll need to open an entirely new account.