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Opinion
June 16, 2026 — 12:40pm
If I offered you $800, you’d probably take it. Yet countless Australians are leaving that sort of money on the table by keeping their savings in the wrong account.
The big four banks alone reportedly have almost $370 billion in low or zero-interest customer accounts. That’s over $16,500 for each Australian adult (although it is not so evenly distributed in reality).
Currently, the best high-interest savings accounts pay just over 5 per cent. On a $16,500 balance, the difference between these high-interest accounts and a zero-interest account is over $800.
That’s more than three times larger than the new $250 WATO tax cut the government just announced. Worse still, these differences massively compound over time. If we look at a 45-year period (say from age 20 to age 65), the difference becomes almost $140,000. That’s more than two brand-new Teslas!
These 5 per cent savings offerings are not complex products, they are zero-risk accounts that provide you with access to your money whenever you want it, without penalty. The dirty secret of the banking industry is that they want you to keep your money in a low-interest bank account. It’s how they make their money.
There’s a term that bank CEOs obsess over that is unbeknownst to the public: “net interest margin” (NIM). It is the difference between what a bank earns from its investments and loan income, minus what it pays us for our savings.
Don’t forget to check that your parents, kids, siblings and friends are making the most of their savings as well.
For example, if their earnings from mortgages and investments averages out to 5 per cent, but they only pay an average of 3 per cent interest for savings accounts, they are making money on that 2 percentage point difference. It may not sound like much, but at the scale that our major banks operate on, this represents billions of dollars in gross profit.
So, they rely on us to forget about where we put our money so they can make billions. Banks also use some tricks to boost their NIM.
First, they offer promotional interest rates. We think we are making the right decision by signing up to an advertised 5 per cent high-interest savings account, however, the fine print notes this rate only lasts for 4 months, before dropping to 1 per cent.
Second, banks set “bonus interest” conditions that you need to meet to receive the full advertised rate.
They may quote a “5 per cent” rate that consists of a 0.1 per cent base rate and a 4.9 per cent bonus rate. To get the bonus rate, you may need to spend a certain amount of money, increase your bank balance each month, not withdraw any money, or meet other conditions.
Jumping through these hoops may sound simple, but a 2023 report from the Australian Competition & Consumer Commission (ACCC) found that 71 per cent of bonus interest accounts did not receive bonus interest in any month.
Worse still, some banks set their base interest rate as low as 0.01 per cent, meaning that failing to meet the bonus interest conditions can leave you with basically nothing. So, why do we leave so much of our money in these low-interest accounts?
Harvard University’s Professor John Y. Campbell – a world-leading expert on personal finance – tells me that “many people still think of their bank accounts as being like cash” so they don’t realise they can earn decent interest rates on them.
Campbell also points to behavioural economics to explain why we don’t react emotionally to an extra 5 percentage points of interest in the same way we react to an extra $140,000. Because humans rely on “cognitive shortcuts”, he says, we tend to “pay more attention to the bigger number”.
So, what can you do about this?
When you get a moment (maybe a quiet Sunday evening), I’d recommend you do a quick check of which accounts most of your cash sits in. Multiply your bank balance with the difference between your current interest rate and 5 per cent (the current market-leading rate). This should return the amount of money you’re losing out on as a result of your suboptimal savings account.
As I’ve suggested before, AI chatbots are getting pretty good at helping with this arithmetic if you don’t want to pull out the calculator.
To Campbell’s point, knowing the dollar figure is much easier for us to intuitively understand than a percentage point difference. $1000 means five weeks of groceries. 1.35 percentage points is less immediately tangible.
As a rule of thumb, if you are getting much less than 4.5 per cent interest, it might be worth finding a new bank for your savings. Finding an account without conditions is usually best, unless you know with certainty that you will meet the conditions every single month.
Then, set a reminder every 6 to 12 months to confirm that your savings are in a competitive account. Because banks regularly change their offerings, it’s not a set-and-forget process.
Don’t forget to check that your parents, kids, siblings and friends are making the most of their savings as well. It’s in your bank’s best interest that you forget about your crappy savings account. Your future self will thank you if you don’t.
Max Yong is a teaching fellow in personal finance at Harvard University. He previously taught personal finance at Melbourne University.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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