Following the Reserve Bank of Australia’s decision to increase the cash rate by 50 basis point this month, banks, credit unions and building societies followed suit on their term deposit and savings accounts, but real returns – or returns after inflation – still remain well below zero.

While the Reserve Bank raised the official cash rate to 0.85%, savings and deposit rates generally still sit below the inflation rate of 5.1%. And not all financial institutions are raising savings rates by as much as the official rate rise.

Still, for savers, including retirees who have previously relied on term deposits for income, the times are improving as official interest rates are expected to rise further, possibly hitting as high as 2.5% by the year’s end, according to some economists’ forecasts.

“After years of savings account rates falling, things are finally on the way up,” says Alison Banney, money expert at comparison website Finder. “However, not all banks are doing this, and the ones that are, aren't always raising it by as much as the cash rate.”

So, shop around, which is the advice of all the experts with whom Morningstar spoke.

Big banks move in unison on shorter term deposits

The banks are trying to lure savers by lifting one-year term deposit rates. Following the June rate rise, Westpac introduced a 1-year term deposit rate of 2.25% per annum (p.a.). NAB quickly followed suit with a ‘special’ one-year term deposit interest rate of 2.25%, also matching the CBA’s 18-month term rate of 2.25%. Likewise, ANZ offered a new rate for its ‘11-month Advance Notice’ term deposit of 2.25%.

However, smaller banks and credit societies are offering higher rates, with the table below from Canstar listing the highest rates being offered across different maturities.

RateCity’s Sally Tindall says analysis from RateCity.com.au shows there are eight banks offering higher 12-month term deposit rates than the big four banks, with the highest being 2.9% offered by AMP, Firstmac and Goldfields Money.

Finder’s Banney adds that higher rates are being offered on term deposits of two years or longer, including Judo Bank’s two-year term deposit rate of 3.40% per annum, Macquarie Bank’s two-year term deposit rate of 3.30% and ME Bank’s two-year term deposit rate of 3.00%. According to the Canstar table, AMP is offering 3.65% p.a. for amounts over $50,000.

“You’ll get an even better term deposit rate if you choose a five-year term. For example, Judo Bank is offering 3.85% p.a. for a five-year term. However, your money will be fixed at this rate for the duration of the term, so you won’t benefit from any rate rises that happen in that time," says Banney.

In considering longer maturing term deposits, Canstar finance expert, Steve Mickenbecker, says savers need to remain aware that they are locking in their money for a fixed period, and rates could be significantly higher in a year.

“Mixing maturites and terms is an option to mitigate this risk. The best rates can be up to five times or more than the average rates, so savers should shop around for good rates, and not settle for average,” he says.

Another option is to ladder your investment amounts, and invest in new term deposits at regular intervals to take advantage of any future rise in interest rates. When the expiry of each term deposit is reached, savers can take advantage of potentially more attractive interest rates. This may also appeal if you need to access your money.

Savings accounts rates up too

Interest rates on online savings and transaction accounts also increased this month, though rates vary dramatically. One of the biggest rate rises so far has been on ING’s Savings Maximiser Account, which currently pays a total bonus rate of 1.35% p.a. However, from 15 June 2022, ING's total bonus rate will increase by 75 basis points up to 2.10% p.a., “one of the best rates in the market by far,” says Banney.

“As well as ING's new rate, a few of the best savings rates available at the moment include Bank of Queensland’s Future Saver under 35s with 3.00% p.a., Westpac Life’s under 30s with 2.00% p.a. and Virgin Money Boost Saver with 1.60% p.a. (when Lock Saver feature is enabled).

“It’s highly likely that more savings accounts will be lifting their interest rates over the next couple of weeks. It's a great time to be keeping an eye on your savings account and comparing it with others in the market, to make sure you're getting a good deal,” she says.

RateCity’s Tindall adds that Macquarie Bank is shaking things up in the banking world by raising the interest rate on its everyday savings account. “Most bank accounts don’t even offer interest, but Macquarie has announced its customers will get a rate of 1.50% on this account without having to jump through any hoops,” she says.

At the lower end, the Commonwealth Bank has increased the bonus interest rates for select savings products by 50 basis points, with new deposit rates on GoalSaver, with the bonus interest rate increasing by 0.50% p.a. to 0.75% p.a. and on Youthsaver, the bonus interest rate would increase by 0.50% p.a. to 0.95% p.a.

If your bank hasn’t announced what it intends to do with your savings rate, Tindall advises you call them up and ask them what they intend to do.

“Savings customers who aren’t happy with their bank’s response to the cash rate hikes can always vote with their feet and take their business elsewhere. People power is one of the few things that might actually force the banks into passing on decent hikes.”