Where to park your savings when rates are low

Australia’s official cash rate has sat at a record low for over a year now, making it more challenging to grow your wealth by earning interest on your savings. 

At times of low rates, it’s worth looking at all the available options for managing your savings to make sure your wealth is kept secure while still yielding a healthy return.   

Here are some PROs and CONs of the various options from the personal finance writers at RateCity.com.au:

Savings accounts

Simple and straightforward, savings accounts can help you make steady progress towards a savings goal, or just put money away for a rainy day.

While savings accounts generally don’t offer the highest interest rates in the world, they typically earn more interest than keeping your money in your everyday bank account. Plus, some banks offer bonus interest rates, where you can earn higher yields on your savings, provided you fulfil certain terms and conditions, such as making minimum monthly deposits and/or limiting withdrawals.   

Savings accounts are also relatively flexible - while making withdrawals is generally discouraged, you can usually get your hands on your savings if you really need it. This flexibility can be helpful if you’re making multiple smaller deposits toward your savings goal rather than a single lump sum, and making occasional withdrawals to cover unexpected expenses.

Click here to find the top interest rates on savings accounts at RateCity.com.au

Term deposits

Term deposits involve paying a lump sum into an account and leaving it to earn interest at a fixed rate over a predetermined length of time – early withdrawals may incur break fees or interest penalties. While term deposits may not offer the same yields as higher-risk investments, they do offer security and minimal risk, and can be budgeted in advance, which can be helpful when working towards a long-term savings goal.

The more money you deposit, and the longer the term your leave it to mature, the higher the rate of interest you can earn. That said, when interest rates across the market are on the low side, it can be worth considering some of the shorter-term deposit options – if interest rates were to rise in the near future, you wouldn’t want to be locked into a low rate and miss out on earning more interest. Several financial institutions will let you roll your savings from one term deposit to another upon expiry.

Click here to find the top interest rates on term deposits at RateCity.com.au

Top up your superannuation

Potentially one of the longest-term savings options available, investing in a super fund can let you grow your wealth over time and enjoy a comfortable lifestyle in retirement.

Keep in mind that any savings you deposit in your super fund are likely to stay there until you retire. It is possible to access your super early, but only under certain very specific circumstances, so consider leaving some money available for emergencies rather than putting all your wealth eggs in one superannuation basket.

Click here to compare Super at RateCity.com.au

What about your debts?

Low interest rates may limit how much you can earn on your savings, but they can also mean lower minimum repayments on mortgages, personal loans and similar debts. By using some of your savings to make extra repayments towards your outstanding loan, you can reduce the principal owing, bringing you closer to making an early exit from your debt, and potentially limiting future interest charges when rates eventually rise.

If you’re concerned about tying up your savings in a mortgage and being unable to access your money in case of financial emergency, some home loans offer redraw facilities, allowing you to withdraw the extra repayments you make further down the track. Another possible option is to put your savings into an offset account, which effectively puts your savings towards your loan, reducing your ongoing interest charges, and still allows you to make withdrawals if required.

Click here to compare Home Loans at RateCity.com.au

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