The wave of bad news from Australia today suggested the cut in interest rates this week, and more in the near future, will be required to stop the economy from falling into a recession. But how will this affect savers, and what steps can you take to ensure you are getting the best possible rates from your savings account?

The first cut is expected to take place tomorrow as this is when The Reserve Bank of Australia (RBA) will be holding its monthly policy meeting. Many economists are predicting a fall by half a percentage point to 5.5%, but some think it may drop even further. Bank analyst Robert Camilleri of Aviva Investments believes the bank will cut rates by 1%.

A cut of half a percentage point would reduce payments on 25 year mortgages of $250,000 by around $85 a month.

It would also boost the troubled Victorian housing market, which yesterday saw over a third of listed properties fail to sell.

However, this is not the news savers were hoping for, as lower rates will also affect the rate banks will pay savers in interest. This makes it even more important for savers to find the best possible rates on savings accounts to provide the highest returns.

But it's not too late to find an account offering high interest rates. The members equity bank is currently offering 7.5% on savings accounts with their online savings account. And if you depost £5,000 (or a minimum $100 per week savings plan) they will give you a $25 bonus.

Another option that may be wise with further cuts expected is to open a fixed rate savings account. This means that the rate is guranteed to stay at the rate agreed for the time specified.

Bankwest tddirect is currently offering 7% p.a. over 3 months, 6.25% p.a. over 6 months, and 5.80% p.a. for 12 months with the bankwest tddirect online term deposit account.

John Edwards, chief economist at HSBC commented: “It all emphasises the importance of having lower interest rates. If you saw this kind of weakness persisting through the first half of next year you would be looking at rates of 4 percent rather than 5%.”

As a result, a higher chance of lower rates is expected and bill futures have implied a cash rate of under 4.5% by June next year.

These rate cuts were previously anticipated based on the recent global financial crisis and the Aussie dollar has escaped without damage. Retail sales dropped 1.1% in September, double the figure previously foretasted by analysts and the biggest drop since April 2005. National house prices also fell by 1.8 percent in the third quarter.

Michael Blythe, chief economist at Commonwealth Bank said: “Given the wall of worry the consumer has been climbing over the last few months, weakish retail spending is not surprising. Things are unlikely to get better in the near-term with concerns about the economic outlook and the labour market weighing down on the consumer side of things.”

The Australia and New Zealand Banking Corp’s monthly survey of job advertisements has provided an insight ino how the labour market may be affected.

It showed a massive 5.9% fall in October, the sixth month to see losses and the largest drop since  2001.

A senior economist at RBC Capital Markets -Su-Lin Ong, has said the data suggests unemployment is likely rise as high as 6.0% by the end of 2009, up from the current rate of 4.3%.

“This will keep confidence, spending and borrowing under pressure, and almost guarantees a further weakening in Australia’s growth pulse. We expect the RBA to cut the cash rate to the historic low of 4.25 percent by mid-2009.” said Ong.

 

Published by Sam Gooch