Even before May’s surprising 0.50 per cent interest rate cut, almost four out of five higher rate taxpayers were losing money on their savings account after tax and inflation were taken into account, and over half of those earning over $80,000 a year were losing money with a typical online savings account, according to research by Ratecity.
With a large part of the 0.50 per cent reduction to the official cash rate likely to be passed onto savers eventually, more people need to be aware that they could be losing money in their savings account because their “real” return, net of tax and inflation, is so low that it is failing to keep up with the rising cost of living.
Now is the time to check what your actual rate of return is and to protect it by locking into a high paying term deposit account or the very best of the online savings accounts, which should pay a high enough return to prevent the spending power of your savings from being eaten away.
The highest rates on offer at the moment are on term deposits and the advantage here is that the rate is fixed for the duration of the term. So, if you can find a deal that pays you a positive real return, it may make sense to lock in now ahead of any other rate cuts.
Economists still expect further reductions later in the year if this latest cut does not lead to a turnaround in the non-mining sectors of the economy.
Don’t settle for what you are earning, check if you could be earning more interest – it could be difference between profit and loss.
Also read – Banks favour savers over borrowers