Is interest rates rising good for savers?

With many banks raising their home loan interest rates, we may hear a cheer on the breeze from savers who’ve suffered through cut after cut to their interest earnings. The recent interest rate rises have seen a boost for savings accounts.

The reasons for this are multilayered. While mortgage holders are seeing their home loan interest rates gradually rise alongside the cash rate, increases to savings rates often lag behind. But we've seen several banks increase their savings accounts and term deposits. Some accounts even start with a '3'!

But why are savings accounts so slow to increase? This is effectively because banks want to earn more through the interest they charge borrowers before passing on any earnings to deposit account holders. It’s a balancing act that banks will naturally want to see-saw in their favour.

But these calculations are a little more complicated than give and take. Over the last 12 months, the consumer price index (CPI) rose by 3.5%. This is only one measurement that gives insight into the cost of living in Australia (and doesn’t account for existing property price growth), but it’s a relatively accurate way of assessing everyday costs most Aussies have to fit in their budgets.

And consumers are sure to be noticing an increase, with 2021 ending on a quarterly CPI rise of 1.3%. The Reserve Bank of Australia, which regulates the cash rate, aims to keep inflation steady between 2-3%.

Considering the 2021 wage growth index only showed a 2.2% annual rise, this effectively leaves consumers worse off. They’re paying more for necessities with wages that haven’t grown comparatively, meaning the money sitting in their bank accounts can’t buy as much, and thus isn’t as valuable. Hence why every news network is talking about the raising cost of living crisis.

When you throw interest rate cuts (or the very slow and minimal rises we’ve begun to see recently) into the mix, this adds to that losing equation for savers.

What is a good interest rate for a savings account in 2022?

Five years ago, savers were laughing with average interest rates of 1.59%, according to the Mozo database. At the start of 2020, before the pandemic reached Australia’s shores, this had fallen to 0.96%.

At the time of publishing, the average savings account interest rate in Mozo’s database was 1.27%, with the highest ongoing bonus rate open to savers of all ages sitting at a 3.10% (offered through the ING Savings Maximiser). So we're slowly getting there to the era of higher interest rates.

If you’re aged 18-29, you can score the higher rate of 3.25% on balances under $30,000 with a Westpac Life account (again, so long as you meet the conditions).

As always, a “good” rate can only be defined by the individual, as different accounts often come with criteria you’ll need to meet in order to receive the headline return on your balance. If you want to explore what’s best for you as savings rates (hopefully) begin to pick back up, start by comparing some of the options below.