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Why we’re losing interest in our savings accounts (in every sense)


Falling rates add up to a potential $1.94 billon in missing interest.

Last week's official drop in interest rates was good news for home loans, but it didn't work out so well for savings accounts. Some banks cut rates by the full 0.25% or more even before the official announcement, while many others sliced their rates in the following days (you can see the full list in our roundup).

Just how much difference would that make? Australians have $778.4 billion in deposit and savings accounts as of March 2016, according to Australian Prudential Regulatory Authority (APRA) data. calculations suggest that if the interest rate was passed on in full, across Australia this would amount to $1.94 billion in unpaid interest over the course of a year. For a typical individual savings account, that's the equivalent of $210 in lost interest.

That's bad news, but it has to be set in context. A fall in rates for home loans makes a much bigger difference overall. As we've noted before, on an average home loan, a 0.25% interest cut adds up to $500 in a year. So even if you lost $210 in interest, you'd still (as a theoretical average Australian) come out ahead.

If you do want to make money, a savings account is also one of the less productive ways of doing it. While it's always better to earn some interest than no interest, the potential returns from other options such as share market trading can be higher. Socking money away in your superannuation can also produce an effective higher return (because of the lower amount of tax you'll pay).

But despite those challenges, it's still worth finding the best savings account you can, and making use of it. While the interest rate be lower, there's also far less risk involved in a traditional savings account. There's also no minimum investment required, and establishing the habit of saving is crucial to moving onto those higher tiers of wealth. So don't be discouraged by rate cuts.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on

Picture: Shutterstock

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