Headlines don’t tell the whole deposit interest rate story
Deposit holders are being urged to look below the headline rate, as banks start to increase the margin between the headline rate and the base rate. According to our research, attractive promotional rates on your savings can dwindle down to the cash rate if you don’t take action. We’re seeing a steady trend upward in the margin between promotional and base rates which is a way for banks to maintain an attractive headline rate while paying a lower ongoing rate after the promo period ends. Base rates for online savings accounts skyrocketed from January to November last year and reached 4.9% due to the intense competition by the banks for your savings dollars. Base rates are now languishing around 3.7% but headline rates are being advertised at an average of 126 basis points above that amount. Unsuspecting consumers could be in for a shock when the promotion ends and the interest they earn is considerably less than they were expecting. The chart below illustrates promotional rates (left hand axis) are being used as a tool to maintain attractive headline interest rates without the cost of paying high ongoing interest. As base rates (right hand side) have declined since the Reserve Bank rate decreases, promotional rates have been cranked up to attract new customers. Click the below image to expand: 
CANSTAR research shows that rates can decrease by as much as 1.85% at the end of the promotional period. It may not sound like much but that can be almost 40% of the advertised rate! So it pays to know conditions attached to your account and how long the attractive rate is guaranteed. Moving larger sums of money into term deposits is one way of making sure your money works harder and your rate is guaranteed for the entire term. But for those savers who still want rates up there with term deposits but with access to their money at any time, then these savings accounts fit the bill. Providing you are aware of any bonus conditions or promotional periods, you can make these accounts work for you. The low-rate environment we are in right now is not good news for the cashed-up. To throw further confusion into the mix, savings rates often move independently of the official Reserve Bank rates. It’s more important than ever to keep on top of what financial institutions are offering and take advantage anywhere you can. This usually starts by making sure your money is in the right account. Article updated 12/09/2012
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