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Xinja, Up, 86 400 cut savings rates: Are neobanks still competitive?


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Digital banks are cutting the interest rates on their savings accounts and reducing the amount of money you're able to earn interest on.

Digital banks Up, 86 400 and Xinja have had some of the most competitive savings accounts offers on the market over the past year. However, fast-forward to late 2020, and they're all making significant changes to their savings accounts that result in some of these challenger banks being much less competitive than they once were.

If you've got a savings account with one of these banks, or if you're thinking about opening one, here's how they're changing and how they compare to other accounts in the market.

Up bank will drop its savings rate, but increase its balance limits.

Up bank currently (as of October 2020) offers a total bonus rate of 1.60% p.a. on its Up Saver account. However, as of 1 November 2020, this rate will be cut by 50 basis points down to just 1.10% p.a. This is a big drop in one movement.

In the process of this rate cut, Up is reducing the variable base rate to nothing (previously 0.10% p.a.). This means, as of 1 November, if you don't meet the bonus rate conditions one month, you'll earn no interest for that month. To earn bonus interest, you need to make five or more purchases in the month from your linked Up Everyday account.

Up is, however, dramatically increasing the balance that you're able to earn interest on. Up will lift its maximum balance for bonus interest up from $50,000 to $1 million. So while the interest rate is significantly lower, you'll be able to earn interest on a much larger balance.

86 400 has dropped its savings rate, and has reduced its balance limits.

As of 13 October, 86 400 has cut its total bonus rate from 1.60% p.a. down to 1.35% p.a. That's a 25 basis point cut, which is lower than that of Up's but still fairly big considering the RBA has kept the official cash rate on hold for many months now. To earn this maximum rate, customers need to open an 86 400 Pay account and deposit $1,000 per month into either account.

As well as cutting its total variable rate, the bank has also recently halved the amount of money you can earn bonus interest on from $300,000 down to $150,000. If you've got more than $150,000 sitting in your 86 400 Save account, the portion above this limit will only earn the variable base rate of 0.10% p.a.

This balance limit is still higher than many other accounts in the market. The ING Savings Maximiser, for example, only pays bonus interest on balances up to $100,000. However ING, in comparison, pays a total variable rate of 1.50% p.a. on balances lower than $100,000.

Xinja is cutting its rate, reducing its balance limit and keeping its account closed to new customers.

Xinja's Stash account has been closed to new customers since March 2020, and it doesn't look like it'll be open any time soon.

Xinja will be cutting its bonus variable rate for existing account holders from 1.65% p.a. down to 1.50% p.a. on 14 October. It'll also be reducing the amount of money customers can earn bonus interest on from $245,000 down to $150,000.

Are digital banks still competitive?

While these challenger banks offer great app-based savings tools and spending features, there are a few other accounts by traditional banks that may offer similar, or better, deals for savers.

The Westpac Life account offers a bonus variable rate of 3.00% p.a. bonus rate, almost double that of the neobanks mentioned above. However there are a few more restrictions, one being that the 3.00% p.a. is only paid on balances up to $30,000. You also need to be aged 18-29, you must grow your balance each month (by any amount, excluding interest) and make 5+ debit card purchases from your linked Westpac Choice transaction account each month.

The MyState Bank Bonus Saver Account offers bonus interest up to 1.50% p.a. on balances up to $250,000. You'll get this rate each month you deposit at least $20 and make 5 or more transactions from a linked MyState everyday transaction account. This rate is higher than 86 400's, and much easier to earn. In comparison to Up's savings account, the MyState Bonus Saver has fairly similar account conditions, however with a much better total rate.

The CUA eSaver Reward account offers an ongoing variable bonus rate of 1.45% p.a. when you link to a CUA transaction account and deposit at least $1,000 each month. CUA offers bonus interest on balances up to $100,000.

So if you've got a large balance over $150,000, the neobanks won't necessarily be the most competitive options for you. Similarly, if you're just starting out and have limited savings so far, Westpac's 3.00% p.a. rate is very hard to beat right now (that is if you can meet the age requirement!).

If you're not happy with your interest rate or the account conditions set by your current savings account, compare savings accounts and consider switching.

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