Forecasts of fresh interest rate cuts by the Reserve Bank of Australia is the last thing that people with bank deposits want to hear.
The RBA had previously warned that its next rate move would be up, but his month changed its tune and signalled it could now go either way.
This has prompted many economists to predict RBA rate cuts are coming this year.
For savers and retirees who have watched interest paid on their deposits sink from 7 per cent to 2 per cent in a decade, the frustration is piling up.
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AMP Capital chief economist Shane Oliver said the RBA would probably wait to see more soft economic data, as well as the Budget and the election result, before cutting its official cash rate.
“We thought the first easing is likely to be around August, but it could come as early as June,” Dr Oliver said.
“Our view remains that the cash rate will be cut to 1 per cent by year end in two moves of 0.25 per cent each.”
RateCity director of research Sally Tindall said some people had simply given up on getting a good interest rate on their deposits.
However, rates near 3 per cent are still available for people who hunt for them and are prepared to do what’s required to earn extra interest.
“You can take advantage of bonus rates that can climb up to 3 per cent in total,” Ms Tindall said.
“Be clever about reading the fine print and shop around.”
This means keeping an eye on bonuses, which may only last a few months before it slips back to a much lower base rate. Many bonus savings accounts only pay up if you meet conditions such as no monthly withdrawals.
Compare savings accounts
Ms Tindall said some savers were looking at shares, property and superannuation as an alternative to cash in the bank.
BetaShares Capital chief economist David Bassanese said he expected two RBA rate cuts by early 2020 amid weaker economic data, a continuing credit crunch, declining building approvals and likely rise in unemployment.
“It means the rates on deposits are going to get even more paltry,” Mr Bassanese said.
He said there were now more opportunities to increase interest income without taking on too much risk. “It’s easy to get relatively low-risk income returns through bonds on the sharemarket.”
The Australian Securities Exchange has funds that invest in bonds, corporate debt and other investments that are less risky than shares. “If central banks start cutting interest rates, bonds are going to do really well,” Mr Bassanese said.
BOOST YOUR INTEREST
- Pay off high-interest debt such as credit cards to earn an effective rate near 20 per cent.
- Offset accounts on mortgages deliver a 3-4 per cent return.
- Choose term deposits paying the highest interest and be prepared to switch.
- Consider fixed-interest investments such as corporate bonds.
- Peer-to-peer lenders bypass the banks and can pay investors around 6 per cent.