Finally, it appears interest rates have steadied after the Reserve Bank of Australia’s (RBA) recent decision to keep the cash rate target ‘on hold’ at 4.35%. This follows 13 rate rises in less than two years.

The announcement has set market analysts’ predictions in motion, with many predicting that slowing inflation could lead to a rate cut from around the middle of the year.

While borrowers are ready for rates to ease off, long-term money savers have been revelling in the periodic cash boosts to their nest eggs by way of high-interest rate savings and long-term term deposit accounts.

However, talk about the official interest rate being potentially cut this year may see many savings account rates drop. So, what does this all mean for savers?

Cause and effect

Let’s begin with what could be behind a fall in interest rates. There has been an inflation slowdown. SBSNews reports the latest consumer price index showed a slower rate of inflation than economists had expected, prompting discussions of whether rate increases could be over for now and whether we could be entering a period of recession.

A recession in its simplest terms is a fall in economic output. During a recession, gross domestic product (GDP) can periodically decrease. People stop spending and output decreases for businesses. If inflation remains level, there is usually a lesser chance of a recession.

Lock it in

Locking in a high-rate term deposit account now comes with the benefit of retaining the higher interest rate even if market conditions and interest rates fluctuate and drop later. However, it's important to note that you may not be able to switch to a higher rate until the end of the term if interest rates go up.

To address the interest rate uncertainty, a potential solution may be to allocate a portion of your savings into a term deposit account. By doing so, you can secure a fixed rate of interest. It's important to note that this doesn't necessarily have to be a long-term commitment, although longer terms often come with an offering of better interest rates.

When is a term deposit the right choice for you?

Short- and long-term term deposit accounts are regarded as reasonably low-risk products that typically offer higher interest rates than standard savings accounts and are ideal for ‘nest egg’ money that you may want to put away and forget for now.

However, utilising term accounts can mean your money is locked in for a longer period, you may require a minimum amount of money you can deposit, and you may be bound by stricter rules and higher penalties than standard accounts.

If you have cash that you don’t need right away, there’s little chance of losing any money with a term deposit account and a greater chance of earning a little interest on your balance.

Moving forward

The steadying of the cash rate target has provided some stability to interest rates after multiple rate increases over a short period, leading to speculation over the possibility of a rate cut later in the year, which could result in a decrease in savings account rates.

Now is the time to consider the best strategies for managing your savings. By staying informed about market developments and exploring different investment options, you can make informed decisions to maximise the growth and security of your savings.

Further reading: SBS News, Reserve Bank of Australia