Australian banks hold billions in low- and no-interest savings as rate hikes lift deposit scrutiny

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Australian banks low-interest savings

Highlights

Commonwealth Bank, NAB, ANZ, and Westpac increased their maximum savings rates by 0.20 or 0.25 percentage points after the latest Reserve Bank of Australia rate hike.
Canstar data shows over 70 per cent of customers never meet monthly conditions for higher savings rates, resulting in base rates as low as 0.10 per cent at major banks.
As of June, Commonwealth Bank, Westpac, NAB, and ANZ held nearly A$122 billion, A$82 billion, A$67 billion, and A$61 billion respectively in non-interest-bearing accounts, while the Reserve Bank is expected to raise rates again next week.

Savings rate conditions limit customer returns

As reported by ABC News, data compiled for the broadcaster by comparison site Canstar shows Commonwealth Bank, NAB, ANZ and Westpac each lifted their maximum savings rates by 0.20 or 0.25 percentage points after the latest Reserve Bank of Australia rate increase.

Consumer advocates say the higher advertised rates often apply only to selected products and come with strict requirements such as minimum monthly deposits or withdrawal limits. If customers miss those conditions, they can fall back to base rates that Canstar said remain at 0.10 per cent at some major banks.

A 2023 retail deposits inquiry by the competition regulator found more than 70 per cent of customers never met the monthly conditions attached to these accounts. Canstar's Sally Tindall said banks could do more to warn customers before they lose bonus interest, including proactive alerts by text message or email near the end of the month.

Melbourne saver Corey Washbourne said he does not find the conditions on his account too burdensome and adds about $50 a month to qualify for the bonus rate. He said the higher return helps protect the value of his savings against inflation and gives him more breathing room.

Deposit balances and rate outlook

Major banks are also holding large balances in accounts that pay no interest at all, according to figures in their annual reports. As of June, Commonwealth Bank held nearly A$122 billion in customer funds in non-interest-bearing accounts, while Westpac held nearly A$82 billion as of March, NAB about A$67 billion, and ANZ about A$61 billion over the same period.

In a statement to ABC, Australian Banking Association chief executive Simon Birmingham said banks support customers to get the most from their savings through app alerts and messages. He added that Australia's savings market is highly competitive, with hundreds of term deposit and savings account options available, and said banks paid more than A$120 billion in interest to depositors over the last financial year.

Western Sydney University associate professor of accounting and financial planning Michelle Cull said consumers should regularly review their banking arrangements to ensure they are getting the best deal. She pointed to offset accounts as one option for mortgage holders, because they reduce loan interest costs as borrowing rates rise.

The Reserve Bank is due to meet again next week to decide whether to raise rates for a fifth time this year as it seeks to curb inflation. Earlier this month, deputy governor Andrew Hauser said the inflation outlook was materially worse than the central bank had forecast, and markets are pricing in a 98 per cent chance of another increase.

Our earlier report on UBS’s outlook for a longer Federal Reserve tightening cycle explained how persistent inflation led the bank to project additional rate hikes, keeping policy restrictive for longer. We also noted that market pricing shifted toward higher odds of further tightening, reinforcing expectations of elevated borrowing costs as central banks stay focused on inflation risks.

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