Hundreds of billions of dollars have poured into high-interest deposit accounts since the global financial crisis, as savers exploited the relatively strong interest rates.
But there are growing signs that further cuts from the Reserve Bank could cause returns from term deposits and online savers to dwindle this year.
Right now there is about $600 billion sitting in term-deposit accounts — a huge amount by any measure. Banks also report very strong interest in online saving accounts, the fastest-growing form of savings in recent years.
However, returns are sliding. The average interest rate for a one-year term deposit is 4.3 per cent, down from more than 6 per cent in mid-2011, Canstar says. Base rates on online savers have fallen to an average of 3.2 per cent, a touch above inflation.
Analysts think there is more pain to come for savers, with the Reserve Bank tipped to cut the cash rate further from its record low 3 per cent in a bid to reignite the economy.
Further squeezing returns from deposits, some experts are predicting banks will no longer compete as fiercely for term deposits and high-interest savings accounts.
Since the GFC, banks have competed hand over fist for deposits because they represent a stable form of funding. Happily for savers, this rivalry pushed up the rates on offer. Term-deposit interest rates used to be lower than the cash rate — now they are well above it.
However, the managing director of the Bendigo and Adelaide Bank, Mike Hirst, last week predicted deposit rates would fall as a result of fading competition between the big rivals.
His argument was that banks would not need to continue chasing deposit funds as keenly, because the improving condition of financial markets means they can access funds elsewhere.
It's not yet clear if he's right, but savers will be hoping the banks' "war for deposits" still has further to run.
Correction: On February 15, Insight referred to tax-free super contributions. This should have read tax-concessional contributions.