Attention Australians: Be cautious when accumulating recession savings, as banks entice with alluring interest rates

Interest rates on some Australian savings accounts could soon surpass six per cent, but one financial expert has issued a warning to savers weighing up a tempting switch.

A dozen banks are currently offering customers savings rates above 5 per cent and there are forecasts savings rates could hit 6 per cent in the coming months.

Three of the big four banks predict the reserve bank will hike the cash rate by 0.25 basis points when it meets for its July meeting on Tuesday before it peaks at 4.60 per cent in August.

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Given the ongoing rate hikes over the last year, plenty of Australians are choosing to save their money in the bank as a protective barrier against recession.

Data from financial regulator APRA showed deposits from households hit a record high of $1.38 trillion in May, $5.2 billion more than what was recorded in April.

“The latest APRA figures continue to defy logic, hitting yet another record high after 12 cash rate hikes,” RateCity.com.au research director Sally Tindall said.

“Some households that still have spare capacity in their budgets are opting to squirrel that money away to boost their war chest in case of recession,” she said.

“Australians have over $390 billion more in the bank than they did before COVID — this is an almighty buffer for the nation to fall back on.

“The problem is some people are still spending up big at the shops, others are stashing it at the bank, while many families are living month-to-month with their budget often in the red.”

Tindall said savings rates “could very well break the 6 per cent barrier” if many economic forecasts are realised, but offered a warning to consumers.

“If you’re looking to maximise your interest, spend 15 to 30 minutes looking at your options to see if you can do better elsewhere,” she said.

“Before you sign up to a new high-interest savings account, have an honest conversation with yourself about whether you’ll qualify for the bonus interest each month.

“While the maximum rates look fantastic on paper, a couple of slip-ups could see your interest rate drop to the floor.”