Cash might be king but it would be even more powerful if we shifted billions out of poorly performing transaction accounts. In fact, we could be missing out on at least $2.6 billion and up to $3.5 billion in foregone interest on household accounts, according to calculations by Rice Warner Actuaries for RaboDirect.
Consumers are not the only ones missing out. If you run a small business, you should also be looking at moving cash to a higher-earning savings account.
Rice Warner says assuming that just 5 per cent of current business transaction accounts can be readily converted to high-interest savings accounts, the extra interest that would be made would be in the vicinity of $340 million to $450 million. If 10 per cent of business transaction accounts could be converted, that would rise to $680 billion to $900 billion.
In total, there might be more than $4 billion – between $2.9 billion and $4.4 billion – in extra interest that we could all be earning in aggregate.
Now if that doesn’t make you have a look at how hard your cash is working for you, I don’t know what will.
It appears we are slowly getting the message. Total cash deposits have increased rapidly since the global financial crisis as investors rushed into the safe haven. Household deposits totalled $693 billion at the end of March, according to data compiled by the Reserve Bank. That’s more than triple the $205 billion they were at the end of 1999.
Over the past four quarters, that sum has been increasing at an annual rate of about 8 per cent. In early 2009, the annual rate of increase was more than 21 per cent.
But as interest rates come down, it is going to become a little harder to find juicy rates for our cash. Term deposits will have to roll over into lesser-yielding accounts and if you want higher rates, you’ll have to lock your cash away for a longer period.
But banks still want your money. The competition to keep those retail funds coming through may have slowed, but it hasn’t stopped. RaboDirect is still offering 5.8 per cent on its term deposits for $25,000 and UBank is offering 5.31 per cent for the same amount over one year.
Ubank reports a massive 400 per cent increase in deposit inquiries in the past 12 months, and RaboDirect says it has seen a reasonable increase.
Self-managed superannuation funds are also choosing to keep their funds in cash when they can, with more than a quarter of their funds under management – 26.8 per cent – in the safe haven, according to analysis by Multiport, compared with 22.8 per cent at June 2011.
More institutions are now offering SMSF-specific deposit products with interest rates the same as the online savings product and bonus interest. The bonus hurdle may just be a little different, as is the case with Ubank, which gives SMSF deposit holders a monthly bonus rate if they don’t make any withdrawals. For regular accounts, the bonus hurdle is monthly deposits of $200. Rolling over a term deposit will also grant you a 10 basis-point bonus rate.
So if your cash isn’t working as hard as it possibly could, you need to do something about it. Check out the best interest rates at a comparison website like infochoice.com.au, mozo.com.au or canstar.com.au.
Since the start of this month, it has also become easier for you to change accounts. Because of the new banking reforms, the provider of the account you would like to switch to is now able to get a list of all your regular debits from your previous account provider if you ask it to. You only have to sign one form to authorise the new financial institution to provide your new details for all your regular direct debits such as gym memberships, utility payments, phone bills, insurance, etc. This ensures you don’t miss a payment and saves those phone calls to all your service providers.
Unfortunately, there is still a fair bit of inertia stopping us from getting a better deal. But the good news is maybe all you have to do is to make one phone call to your existing provider. Sometimes they will be so upset at losing you they will offer to match the rate that the new provider is offering you on the spot. But sometimes they don’t.