The Reserve Bank of Australia cut official interest rates three times last year to a record low 0.75%, and the nation’s savers are feeling the squeeze. In such an environment, retirees are going to have to work harder to make their savings last.

While last year’s three rate cuts have been good news for anyone with a mortgage, they pose a problem for savers, particularly older Australians who rely on their savings for income throughout their retirement years. 

Before interest rates started dropping back in June of 2019, the average ongoing savings rate among accounts tracked by Mozo was 1.53% p.a. Nowadays, it sits at a paltry 0.97% p.a. 

That means a balance of $100,000, which would have earned $1,530 in interest over a year at 1.53% p.a., will now only get you $970 — that’s a difference of $560.

And with the top brass at the Reserve Bank signalling even more cuts to come, most likely in February of this year, things are only set to get worse for the nation’s savers.

Don’t get complacent

If the goal is to maintain your desired lifestyle throughout retirement, a low interest rate environment adds an extra layer of difficulty to the task, particularly if other ways of generating income are off the table.

But while most savings accounts don’t offer much to get excited about - the average rate across the board sits well below the headline rate for inflation - that’s not to say there aren’t still worthwhile options out there. 

Online banks and neobanks should be among the first places anyone hoping to make the most of their savings should look. These are the primarily app-based banks that have rolled out in Australia in recent years.

Since they don’t have the same overhead costs that the big banks do, many are able to offer savings rates that are much more attractive. Among savings accounts tracked by Mozo, four out of the top five are provided by online banks or neobanks.

As for term deposits, while rates have been in freefall for a while now, newcomers like Judo Bank have actually increased their rates in recent months, now offering as much as 2.50% p.a. on five year terms.

If the idea of switching to a mostly digital bank makes you uneasy, rest assured. All Authorised Deposit-taking Institutions are insured by the Financial Claims Scheme, a government initiative which protects deposits of up to $250,000 in the unlikely event a bank goes under.

One caveat is that the $250,000 limit extends to any money you might have in another bank headed by the same parent organisation. So if your balance exceeds that amount, it’s probably best to spread it across different institutions.

Above all, it’s important not to become complacent, and to always be willing to make the switch when you come across a higher-earning product on the market. There’s no point remaining loyal to your bank if you’re only getting minimal returns on your savings, especially considering how easy it is to switch nowadays.

Stretch your money further

Without a regular income stream to supplement the money you do have, you’ll need to be able to make ends meet without dipping into your savings too much. To this end, retirees should be looking for ways to stretch their money further. 

The first thing to keep in mind is to avoid taking on new credit card debt, and if you do have any existing debt you should prioritise paying it off so your money doesn’t get eaten up by interest charges.

Another good idea is to keep a budget. Before you balk at the idea, this doesn’t mean reining in your spending completely. Rather it just involves being more mindful about where your money is going each month.

This is easier than ever nowadays, considering there are several money tracking apps that are either available to download or come included with accounts.

While you might have to cut back on the occasional non-essential purchase, sticking to a budget shouldn’t have to involve making any huge sacrifices.

The idea is to strike a middle ground in your spending that allows you to enjoy retirement while also ensuring your capital lasts as long as you need it to. This will require a clear idea of how much your basic living expenses amount to, along with how much money you can expect to come in through interest or investments.

Mozo is a trailblazer in financial comparison, providing Australians with practical money tips and expert analysis, challenging the norms and creating award-winning tools to help you master your financial journey since 2008.