Young stock market investors will not be quickly attracted to deposits
Ms Tindall said the problem was that the more money savers had with banks, the less likely they were to be offered a competitive rate.
The offer of low deposit rates has been a key driver for the hundreds of thousands of young Australians who have moved into the equity market during the COVID-19 pandemic.
Last November, when interest rates were 0.1%, 30% of new online investors said they started investing because of those low rates, according to research by Investment Trends.
Young Australians seek higher returns in the equity market
For Madden Burns, a 30-year-old communications professional, the low interest rate environment made her move into the equity market inevitable.
The Sydney-based investor and employee of the Future Women initiative at Nine Entertainment, publisher of The Australian Financial Reviewhad saved for a house with one of the big banks and was earning next to nothing in interest.
Sticking him about $80,000 in stock market savings through neo-broker Stake was nerve-wracking. But today, she didn’t know if she would ever go back to keeping money in the bank, or even if she would consider housing her favorite investment.
“I was saving for different things – I had the house trust fund [in the bank] but I had a little extra money, so I decided to start putting money into the US market,” Ms Burns said.
“I started around April or March 2020 when it all fell apart, so I bought really cheap and everything went really well…I started putting in more and more, and towards the end of 2020, I came to think that housing was realistically out of reach for me, so I put the entire trust fund into Stake.
“Now I’m full.”
Melburnian Dylan Weston, 29, has agreed that until interest rates “easily outpace” inflation he will keep his wealth in an investment account with online broker eToro.
The former restaurant manager, who quit his job to focus on trading full-time, said investing in the markets would speed up his home-buying plans by a few years.
“With house prices at an all-time high, it’s hard to save for a cash-only deposit,” Weston said. “The good thing about the stock market is the lower barrier to entry, which means anyone can start investing today with just a smartphone.”
According to Mozo’s analysis, savers are still not getting their money’s worth, even with rate hikes.
Savers see little benefit from higher rates
A saver with one of the main rates provided by AMP, ING or Virgin Money – all offering rates of 1.35% – would earn $136 in interest on $10,000 over 12 months.
And while any increase is better than none, lenders also aren’t required to pass on the full benefit of an RBA rate increase to savers, meaning some may miss out altogether.
Although the RBA cut the cash rate by 0.65 percentage points during the pandemic, major lenders cut goal savers rates by 1.27 percentage points.
This meant that someone earning an average interest of 0.25% on $50,000 in savings, before the rate hike, would have earned $10.62 in monthly interest.