Australians who rely on their bank savings to earn interest are already getting some of the lowest rates on record — and they are expected to drop even further in the coming months.

Key points: Many banks are offering 'above market' initial interest rates on their savings accounts

Many banks are offering 'above market' initial interest rates on their savings accounts These promotional rates often fall to 0.2-0.5pc after several months — much lower than the rate of inflation (1.3pc)

These promotional rates often fall to 0.2-0.5pc after several months — much lower than the rate of inflation (1.3pc) Interest on savings accounts will continue falling, with the RBA expected to cut rates again before the end of 2019

Earlier this month, the Reserve Bank cut the official cash rate by 25 basis points to a record low 1.25 per cent.

Several banks have since matched or exceeded the RBA's move, by lowering the interest rates on their savings accounts by at least 0.25 percentage points, including National Australia Bank, Suncorp, Citi and ING.

The Commonwealth Bank went even further, slashing the promotional rate of its NetBank Saver account by 0.31 percentage points to 2.2 per cent, but this falls to 0.3 per cent after five months.

Many banks are enticing customers with above market savings rates (from 2-2.75 per cent) for the first few months, but they attract certain conditions — requiring customers to deposit a minimum amount, or not withdraw any money each month.

After the honeymoon period ends, the rates on these savings accounts typically fall to levels between 0.2 and 0.5 per cent.

This is significantly lower than the rate at which the cost of goods is rising, with the headline ABS measure of inflation at 1.3 per cent.

"We have never seen at-call savings account rates this low," said Vadim Taube, the chief executive of financial comparison website InfoChoice.

"That means your money is not growing significantly in real terms and could be losing value if you leave it sitting in one of these low-rate savings accounts.

"I urge all savers to check their savings account and compare it with the rest of the accounts in the market."

Rates to fall to even lower 'record lows'

A total of $526 billion is currently held in savings accounts across the nation, according to research released last week by another comparison website Finder.

It found that households may lose around $1.3 billion in interest from their term deposits and savings accounts if the banks pass on the full rate cut of 0.25 percentage points.

The hardest hit groups will be "those saving for their first home, or retirees relying on their savings as a form of income", said Graham Cooke, Finder's insights manager.

In addition, more cuts to deposit rates are expected in the next few months.



Many economists anticipate the RBA will continue trying to stimulate Australia's flailing economy by cutting interest rates in August — with an increasing number betting that the rate cut could happen as soon as July.

Expectations of an imminent follow-up rate cut increased after the latest economic data revealed that the nation's unemployment rate failed to improve, the retail sector is enduring recession-like conditions, consumer sentiment is increasingly pessimistic, and Australia's economic growth dropped to its slowest annual pace since the global financial crisis.

NAB has downgraded its outlook for the economy, predicting the RBA will cut interest rates twice more by November — down to an even lower record low of 0.75 per cent.

"The forecast of a larger reduction in interest rates reflects our judgment that the economy is losing momentum and is weaker than reflected in the Reserve Bank's recently downgraded near-term growth outlook," NAB's economists wrote.

Investment bank JP Morgan provided an even bleaker assessment, with its forecast that Australia's cash rate may fall as low as 0.5 per cent by mid-2020. The RBA would have to implement three more 25-basis-point rate cuts to reach those depths.