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'The big four are trying harder ... bless them.' Photo: James Davies

Banks are in an all-out war - not, as you might suspect, over mortgage rates, but savings rates. And play your cards right and the winner will be you.

While the Reserve Bank might be poised to again cut official rates, fierce competition between the big banks as they try to shore up funding means deposit rates look set to remain generous.

Banks are actually looking after those with savings - they need their cash. The evidence is in the recent Reserve Bank minutes that revealed deposits now account for a record 50 per cent of funding. Of that, term deposits - predictable and therefore highly sought after - have moved from 30 per cent in 2007 to 45 per cent.

And all this at a time when, for battle-scarred Aussie investors, cash is king. As "she'll be right" has morphed into "she'll be responsible", our national savings rate has hit an almost-generational high (it briefly shot higher still when credit crunched) of about 11 per cent of household income.

So it's happy days that the big four are now competing harder than ever for your deposit dollar. They are offering better online savings rates than most institutions - something they've never troubled to do - says exclusive analysis by Mozo for Smart Investor Money.

Two years ago the cash rate stood precisely where it does today - 4.25 per cent - but the average standard rate on a big four bank online savings account has actually increased from 4.19 per cent in April 2010 to 4.23 per cent. Bonus rates have dropped only slightly from 5.75 per cent to 5.68 per cent.

Smaller players have instead reduced the attractiveness of their offerings (choosing to fatten their margins) over the same period.

But here's the thing: this latter group, and not the big four, still provides the top rates. UBank, actually the online arm of NAB, and RaboDirect, part of a huge international outfit with origins in agribusiness, both offer bonus rates above 6 per cent.

Can you do better if you're willing to lock cash away for a time? The big four are competing more aggressively than two years ago on short-term deposits, too, but less hard on longer term ones. This suggests short-term funding is more challenging for them.

Mozo says the big four are effectively paying two percentage points more interest on six-month deposits than they were two years ago. In 2010 they were paying almost 50 basis points below the cash rate; today, it's 121 basis points more.

By contrast, the rate on one-year term deposits is 86 points less. But, once again, the big institutions do not offer the best options overall.

Over five different terms, not one big bank appears in the top five products.

Instead the names are more unfamiliar ones such as, again, UBank and RaboDirect, and B&E Personal Banking, Qantas Staff Credit Union and Arab Bank.

Don't forget either that foreign banks with an Australian banking licence join Australian banks, credit unions and building societies in qualifying for a government guarantee for up to $250,000 per account holder per institution (this was $1 million until February this year).

If you are prepared to lock money away for longer terms, you could boost your return to as much as 6.5 per cent. Just be a bit cautious though - in five years' time, official rates might be right back up again.

So if the big four are trying harder than they have before - bless them - but still aren't cutting the mustard, do they have anything to offer?

They do to those willing to accept risk to their capital and buy big bank shares.

The average gross dividend yield is a phenomenal 9.26 per cent (gross yield takes into account the favourable tax treatment dividends receive).

That means you can earn far more from owning bank shares than you can by putting money in their accounts. Westpac pays the highest at 9.86 per cent, NAB 9.77 per cent, CBA 8.98 per cent and ANZ 8.43 per cent.

At yields like that you don't need capital growth - and battered bank shares might have fallen as much as they're going to.

People with mortgages can do even better with spare cash, though, whether or not that mortgage is with a big bank.

Money held on deposit earns less than you pay in interest on a home loan (even though the gap is narrowing) - so you'll always make more of your moolah by repaying debt.

And because you don't actually earn but instead save, you pay no tax.

A higher-rate taxpayer would need to make almost 12 per cent from an alternative investment to come out ahead. And that's just about impossible right now.

Nicole is also the editor of Smart Investor magazine. Follow her on Twitter @NicolePedMcK