Banks sitting on billions in savers' money as interest rates rise

The big four banks' annual reports show they are sitting on billions in customers' money that is not earning interest.

Consumer advocates fear stringent conditions attached to high-interest savings accounts contribute to a broader issue.

Savers are being urged to be aware of the terms and conditions and shop around.

Savers with billions of dollars in Australian banks could be missing out on the benefit of rising cash interest rates as a result of onerous account conditions or because they have not opted for the right type of savings product.

Data compiled for the ABC by comparison site Canstar shows following the last RBA interest hike announcement the Commonwealth Bank, NAB, ANZ and Westpac each increased their maximum saving rates by 0.20 or 0.25 per cent.

Consumer advocates fear some of that money is sitting in high-interest savings accounts that come with strict conditions, including regular contribution amounts, and customers are falling just shy.

The competition regulator found in a 2023 retail deposits inquiry more than 70 per cent of customers never met the monthly conditions.

While each of the major banks were quick to increase the interest paid on mortgages after the September rate hike, customers with high interest savings accounts have not been finding the corresponding interest rate increases as lucrative.

Canstar said it found the rate increases were applied only to a select few of the banks' savings account products, and with strict conditions attached.

Unless savers meet those requirements they reverted to a base rate for interest that the banks have kept flat at 0.10 per cent.

That means one slip-up, for example, missing the target for the minimum monthly deposit, or forgetting about the minimum withdrawal requirements, and savers receive virtually zero in interest.

Then there are customers who do not make the most of rate hikes at all, with the big four banks sitting on hundreds of billions of dollars of customers' money in accounts that are earning no interest.

As of June, the Commonwealth Bank held nearly $122 billion of its customers money in accounts earning no interest, according to its annual report.

Westpac held nearly $82 billion as of March, while NAB held about $67 billion, and ANZ held about $61 billion in the same period.

Canstar's Sally Tindall said when banks announced they were passing rate rises it was not as clear-cut as it appeared.

"Many customers will miss out, at least from time to time, because they don't meet those terms and conditions," she said.

She argued banks could be doing more to ensure their customers did not miss out.

Melbourne saver Corey Washbourne said he did not find the conditions on his account too onerous. He adds about $50 a month to get the bonus rate.

He is thankful for the higher interest rates on his savings accounts, because it is protecting the value of his savings against inflation and gives him breathing room.

"It's just reassuring to know that you've got that interest coming into your savings account to top it up and act as that buffer, and you're not going backwards as much.

"There's that little bit of cushion and breathing room".

In a statement to the ABC, the Australian Banking Assocation's chief executive Simon Birmingham said banks supported customers to get the most out of their savings, including through app alerts and messages.

"Australia's savings market is highly competitive, with hundreds of term deposit and savings account options available to customers," he said.

Across the last financial year, Mr Birmingham said banks paid out more than $120 billion in interest to depositors.

"Product offerings from banks do vary and this choice gives customers the flexibility to choose products that best suit their personal circumstances," he said.

On top of marginal interest repayments, many Australians are missing out on the opportunity to make a bit of extra cash each month from choosing a bank account that pays no interest.

The ACCC inquiry found only 16 per cent of consumers switched their savings account in the past three years, and only 11 per cent have switched their transaction account.

Western Sydney University associate professor of accounting and financial planning Michelle Cull said consumers should be conducting "regular checks" of their banking to ensure they were getting the best deal.

Dr Cull said, for example, by exploring the option of an offset account.

"Plus you're not paying tax on it [compared to interest on savings], so there's an extra saving there."

But she emphasised every situation was unique, and it was important for consumers to read the fine print.

"You really need to look carefully at your own circumstances."

Behind those shiny numbers that the banks promote on their savings products, Dr Cull said there could be several caveats.

"Remembering an introductory rate is only for a limited time," she said.

The Reserve Bank will meet again next week, to decide whether interest rates will hike again, for a fifth time this year, with the goal of curbing inflation.

Earlier this month, Reserve Bank deputy governor Andrew Hauser said the inflation outlook was "materially worse" than the RBA had forecast, lifting the odds of a hike in November.

Markets are putting the chances of a rate rise at 98 per cent.

Ms Tindall said if customers were not happy with their savings account, they could "take your nest egg shopping".