Flourish - Latest Edition - Flipbook - Page 52
The small print can hurt more than
people realise
Higher interest rates do
not always mean better
savings outcomes
It is easy to assume that
when the cash rate rises,
savers automatically win.
But it is not that simple.
The RBA noted in a 2026
Bulletin article that at call
deposit rates tend to adjust
by less than one for one with
changes in the cash rate. That
means banks do not always
pass rate increases through
fully to everyday savings
products. The same article
notes that at call deposits are
a cheap source of funding for
banks, which helps explain
why many standard savings
accounts can lag broader rate
movements. So while interest
rates have risen, not every
saver is receiving a return that
properly keeps pace.
Another reason savings can
stall is that many accounts
only deliver their headline rate
if you jump through certain
hoops. Moneysmart says many
savings accounts offer bonus
interest only if you meet
conditions such as making
regular deposits or maintaining
a minimum balance. It also
warns that some accounts use
honeymoon rates, where a
higher introductory rate later
drops back to a standard rate.
If you miss the conditions,
forget to review the account,
or simply leave money sitting
in a low yielding transaction
account, your return can fall
well short of what
you expected.
Tax can quietly trim your real
return too
There is another layer many
people overlook: tax. The
Australian Taxation Of昀椀ce (ATO)
states that interest earned
from a bank or other 昀椀nancial
institution is assessable income.
That means the return on your
savings is not just competing
with in昀氀ation, but in many cases
also with tax. So even if an
account appears to be keeping
pace on paper, the after-tax
return may tell a different story.
For some savers, especially
those in higher tax brackets,
the real gain can be negligible
or negative once both in昀氀ation
and tax are accounted for.
