- Many savings accounts have now seen the May cash rate hike passed through
- The highest savings and term deposit interest rates are now delivering returns well over 5%
- Higher deposit rates may see some cash holders choose to deposit their funds for the short term at least
Many - but not all - savings account interest rates have now received another boost in the wake of the May cash rate hike, the third consecutive increase since February.
The latest hike has seen some of the top savings rates reach as high as 5.90% p.a. (with introductory rates for new accounts or bonus conditions attached), while no-strings, ongoing rates are comfortably over 5.00% p.a. with the better-paying banks.
See also: The different types of savings account interest rates
Savings rates matching term deposit market
Many savings rates have now caught up with term deposit rates which are typically the bellwether of where interest rates are heading.
That's because term deposit rates are fixed for a period into the future and are set in anticipation of cash rate movements and market conditions.
As such, the highest term deposit rate on the market has been unchanged for some time - Rabobank's 5.70% p.a. for a five-year deposit for amounts over $500,000 and up to $2 million.
For those looking to stash a more modest amount of cash for a shorter period, the best one-year rates are around 5.45%-5.50% p.a., generally with smaller and challenger banks, some accepting deposit amounts as low as $1,000.
See also: Compare one-year term deposit rates
Why are savings rates similar to term deposit rates?
The fact the highest term deposit rates haven't jumped the benchmark in recent weeks suggests banks may be expecting interest rates to remain where they are for a time - or they're waiting to see what happens.
This lines up with the updated forecasts of Commonwealth Bank and ANZ economists this week who expect the cash rate to remain on hold for "a prolonged period".
However, both NAB and Westpac expect further rate hikes in 2026, with NAB tipping one more in August while Westpac suggests there will be another two increases.
Throw in worsening jobs data and a shake-up of markets following investor tax changes announced in last week's federal budget and people holding cash could well consider the deposit market a risk-free bolt hole while gauging their next move.
See also:
- Investor backoff to further slow housing demand
- Budget under fire as expert warns of housing fallout
- Home lending dips in 2026, even before the federal budget
How do savings accounts and term deposits compare to other investments?
Savings accounts and term deposits offer guaranteed, low-risk returns that typically offer lower yields than growth investments (but not always) while providing security and liquidity.
See also: Should you put your money in a savings account or invest it?
Even with current 5%-plus returns, these tend to be eroded by inflation which is also tipped to be around 5% by the second half of the year.
There is also a new variable in the deposit vs invest conundrum that some cash holders may be weighing up.
Enter new capital gains tax regime
People looking to invest in Australian assets will need to negotiate new capital gains tax rules, set to take effect from 1 July 2027.
The new system will replace the existing 50% discount on capital gains on assets held for 12 months or longer with an inflation-indexed calculation and a minimum 30% tax rate on gains made after 1 July 2027.
Investments in property, shares, and cryptocurrency are subject to capital gains tax while returns on savings accounts and term deposits are counted as income and taxed at an individual's marginal tax rate.
See also: What is withholding tax on a savings account?
Most Australians on a median income pay a 30% tax rate - cited as the government's motivation to match tax on earnings with tax on capital.
The difference is savings accounts and term deposits offer a no-risk return on investment, where the depositor generally knows how much they'll earn and what tax they'll pay.
How does 5%-plus currently stack up?
A risk-free, 5%-plus return on cash holdings is currently delivering more than the ASX 200 Index's 3.77% over the past 12 months.
It also compares favourably to the Index's 0.58% loss in the year to date.
Here's a look at the current yields on some of Australia's blue chip stocks:
- Commonwealth Bank - around 3%
- CSL Limited - 3.8%-4.2%
- Woolworths - around 2.6%
- Telstra - around 3.6%
- BHP - around 3.4%
Of course, the share market is far more volatile than the deposit market but has historically been significantly better at delivering long-term growth.
Where you put your cash will depend on your risk appetite and your longer-term financial goals.
What about young people trying to save a home deposit?
One of the criticisms of the federal government's new capital gains tax regime is that it will also scoop up young investors, some of whom may be trying to grow their cash for a home deposit.
See also: What you should know about rentvesting
It's notable many of the market's highest savings rates are for products specifically targeted at younger savers, sometimes up to 35 years old, depending on the bank.
These are often marketed as 'growth accounts', designed to help aspiring first home buyers save for a home deposit.
It's generally hoped young customers lured by a generous savings rate may also take out a home loan with the bank when the time comes.
Both Newcastle Permanent's Smart Saver account for 0-24 year olds and Westpac's Life account for 18-34 year olds are offering a top rate of 5.75% p.a. when bonus conditions are met - Newcastle on balance amounts up to $49,999 and Westpac up to $30,000.
Of course, deposit rates are subject to change according to the cash rate, as well as general economic conditions, geopolitical factors, and market competition.
But when rates are high, those looking to earn interest may be more tempted to opt for the route of safe returns.
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Need somewhere to store cash and earn interest? The table below features savings accounts with some of the highest interest rates on the market.
| Bank | Savings Account | Base Interest Rate | Max Interest Rate | Total Interest Earned | Introductory Term | Minimum Amount | Maximum Amount | Linked Account Required | Minimum Monthly Deposit | Minimum Opening Deposit | Account Keeping Fee | ATM Access | Joint Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
0.05% p.a. Bonus rate of 5.30% Rate varies on savings amount. | 5.35% p.a. | $1,097 | – | $0 | $249,999 | $0 | $0 | $0 |
| Promoted | Disclosure | ||||||||
2.25% p.a. Bonus rate of 3.15% Rate varies on savings amount. | 6.00% p.a. Intro rate for 4 months then 5.40% p.a. | $1,134 | 4 months | $0 | $499,999 | $0 | $0 | $0 | Promoted | Disclosure | |||||||||
4.00% p.a. | 5.90% p.a. Intro rate for 4 months then 4.00% p.a. | $936 | 4 months | $0 | $249,999 | $0 | $1 | $0 | Disclosure |
