Two of the nation's biggest banks have slashed key deposit rates to virtually zero, leaving millions of Australians who depend on the interest from their savings with almost no extra income.
ANZ Bank and National Australia Bank have reduced the rates they are offering on their basic saver accounts, just days after the Reserve Bank of Australia's most recent cut to official interest rates.
According to financial services research firm Canstar, ANZ has halved its online saver base interest rate to 0.15 per cent. It has kept its introductory rate on the account at 1.8 per cent.
The base rate on its progress saver account remains at 0.01 per cent, although it has sliced a full 0.25 percentage points from the bonus rate on this type of account to 1.95 per cent.
Rates across its premium cash management accounts have been cut by between 0.1 and 0.25 per cent.
NAB has sliced rates on a range of its savings accounts by between 0.1 and 0.19 per cent. The base rate on its iSaver account and its reward saver account is now 0.11 per cent.
When NAB announced last week it was cutting its mortgage rates, it said it would not cut its savings rates by any more than 0.19 percentage points.
NAB is paying 1.26 per cent on balances of more than $250,000 for its retirement account. Balances less than that are attracting rates of between 0.1 and 1.06 per cent.
Across most of the savings accounts from both banks, depositors are earning far less than the inflation rate, meaning in real terms they are going backwards.
Canstar finance expert Steve Mickenbecker said it was inevitable that following the RBA's June and July interest rate cuts there would be a pass-through to savings accounts.
He said all four of the major banks reduced their online savings rates to 0.3 per cent following the June rate cut, with expectations that Westpac and the Commonwealth Bank of Australia would join NAB and ANZ in trimming their rates.
"Australian savers are now staring down the barrel at zero interest rates, as ANZ and NAB cut base rates to 0.15 per cent and 0.11 per cent respectively," he said.
"Canstar's website lists a 2.05 per cent online savings account and six others upwards of 1.75 per cent. The top five six-month term deposit rates fall between 2.3 per cent and 2.45 per cent. Of course, some of these rates could also end up trimmed. Savers must start looking at options beyond the obvious."
Mr Mickenbecker said while introductory rates might look appealing, they would return to the base rate after a few months' honeymoon.
All of the major banks offer higher rates for special deposit accounts as long as customers meet certain conditions. ANZ's progress saver account offers a bonus 1.94 per cent rate provided people make at least one deposit worth $10 a month and have no withdrawals during the month.
NAB's reward saver offers a bonus 1.75 per cent but also requires at least one deposit and no withdrawals a month.
When the RBA started its latest round of interest rate cuts, governor Philip Lowe recognised that depositors would be hurt, saying he expected many letters and emails from those affected.
"We recognise that many Australians have saved hard and rely on interest from term deposits to support their income and spending. [The] decision will reduce their income from this source and we understand why they would be disappointed with the outcome of [the] meeting," he said in June.
There could be even more pain for savers with growing expectations the June-quarter consumer price index report, due on July 31, will show a further step down in inflation.
UBS senior analyst George Tharenou said the trimmed mean of inflation, a key indicator for the RBA, could fall to a record low of 1.5 per cent in the June quarter.
He said that would mark a record 14 consecutive quarters of the inflation rate being below the RBA's own inflation target band.
On top of a further drop in gross domestic product, a soft jobs market and the absence of a lift in wages, the risk of another cut in official interest rates was growing.
"Overall, while significant policy stimulus is coming to support the outlook - including tax cuts and rate cuts - the starting point for the economy keeps getting materially worse," he said.
"Hence, we still expect the RBA to cut the cash rate by another 25 basis points by November, but with risk of more and earlier easing."
- SMH/The Age