Need to know
- Australians' appetite for high-interest bank accounts has been rising along with the rates on these products
- CHOICE regularly compares the best options and we've seen the most competitive rates coming from lesser-known banks
- With banking reforms on the horizon, we're pushing for changes to help more consumers find better deposit deals
At CHOICE, we're always keeping an eye on which of our articles resonate most with readers.
In the wake of periods of historically high inflation, interest in our article on the best savings accounts is like the current cost of living – higher than it's ever been.
By comparing the best high-interest savings options from across all the banks, we're helping consumers make better choices about where they park their money.
But we've also noticed that, in a country dominated by the big four, a lot of the best high-interest products come from banks many of us may not have heard of.
The big four banks dominate Australia, but their savings accounts don't have the best rates.
Rate hikes reviving interest
Until quite recently, consumer appetite for high-interest savings accounts, which promise better rates of return than standard savings or everyday transaction products, had been flagging.
This is because the rates on these accounts (just like those on mortgages) follow the Reserve Bank's (RBA) cash rate target.
Low inflation and significant economic headwinds pushed this figure further and further down in the decade leading up to 2022.
This made it cheaper to borrow money, but meant that 'high-interest' savings accounts were anything but.
This has punished borrowers, but also breathed life into the savings market
By mid-2021, the rates on these products were typically around just 1% per year, casting saving in an increasingly dim light.
Australia's emergence from the COVID-19 pandemic and the associated boom in spending, along with inflation, prompted the RBA to raise the cash rate month after month, with the rate sitting at 4.35% at the time of writing.
This has punished borrowers, but also breathed life into the savings market, lighting a fire under high-interest accounts.
These products are now starting to live up to their name, with rates hovering around 5.50% on the most competitive options.
Inflation-busting products coming from curious quarters
Many of the best savings accounts come from lesser-known banks.
While high-interest savings accounts may not sound as exciting as some more modern investments, they can still help your savings grow.
Inflation in the year to June 2024 was 3.8%, meaning funds in a high-interest savings account earning 5.50% per year will increase in value, even after inflation (which erodes how much our money is worth).
What's intriguing, though, is that the accounts offering these rates come from unexpected sources.
Ever heard of Australian Unity, Unity Bank or Move? No surprises if you haven't, but these institutions are subtly courting Australian savers, consistently offering the best deposit rates.
Meanwhile, the big four banks have lagged behind, with their market dominance failing to translate into high savings rates.
Most of the high-interest savings products you'll find on their websites offer returns well below those stumped up by smaller and newer banks.
Why the lack of interest?
Tom Abourizk is head of policy at CHOICE and has been examining consumer finance products for several years.
He points out the low rates of switching between deposit products – just 16% of consumers changed their main savings account to a different bank in the last three years, according to the ACCC.
Tom says this "sticky" consumer behaviour means big banks don't have to put up competitive offers to hold onto customers.
"The incentive to gain more customers on good deals doesn't necessarily outweigh the value of paying less interest to their already-existing savings account customer base," he explains.
It is worth mentioning that at least some of the big four have upped their game recently, with new products from brands like ANZ making it into our lists of top performers.
Most savers tend to stick to their current bank, meaning there's little incentive for banks to offer higher rates.
Smaller institutions, meanwhile, are often trying to get established in the banking market, so are more willing to offer better rates.
Peoples' savings can also be a useful source of credit for these minor players.
"[They can], in particular, use savings deposits to finance their lending activities, as it can be a lower cost source of credit for them," Tom says.
"This creates more motivation to obtain a greater share of the savings market, even if it means paying out more interest to customers."
Are smaller banks safe?
Tom says anyone unsure about giving their savings to a smaller, lesser-known institution should know there are extensive rules in place to protect deposits
"Banks are not allowed to play fast and loose with our savings," he explains. "The Australian Prudential Regulation Authority (APRA) imposes strict capital requirements that make the risk of a bank going bust extremely small."
And if an institution does run into trouble, the federal government's Financial Claims Scheme (FCS) is designed to guarantee the safety of the first $250,000 of your savings, as long as you've deposited the money with a regulated bank.
Our work to help savers
CHOICE is advocating for changes to help you get more value from your savings account.
Following campaigning from CHOICE and other consumer organisations, the federal government announced in June that it would be making changes to the savings sector to "help Australians get a better deal on banking products".
Among the reforms being floated is a requirement on banks to reduce the barriers customers face when switching savings accounts and regulations to make institutions tell customers when the rate on their savings account is changing.
Tom is part of the team meeting with the government to discuss its ideas and he says CHOICE is pushing for extra initiatives.
"We've been encouraging them to look at making the banks automatically move customers who are on objectively worse deals into better accounts they offer, on an opt-out basis," he says.
"People who don't have the financial nous or time to shop around and find better deals shouldn't be left worse off."
We're on your side
In more than 60 years of making a difference for Australian consumers, we've never taken ads or sponsorship.
Instead we're funded by members who value expert reviews and independent product testing.
With no self-interest behind our advice, you don't just buy smarter, you get the answers that you need.
You know without hesitation what's safe for you and your family.
And you'll never be alone when something goes wrong or a business treats you unfairly.
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Stock images: Getty, unless otherwise stated.
