In a nutshell:
- Recent rate cuts have been great news for borrowers. Less so for savers, however, as falling interest rates have steadily chipped away at their returns.
- Following the October OCR cut, some banks are now paying 0.00% p.a., or near enough, on their simple savings accounts. It means the great migration towards term investments has officially begun, as savers go out in hunt of better returns.
- As banks seek to protect their margins—while still offering attractive term investment rates—it results in a bit of an interest rate juggling act for the banks across their different savings products, and simple savings rates get squeezed.
- There’s a raft of other options out there for savers seeking better returns, with a number of bank and fintech providers offering savings accounts with returns north of 1.50%.
- Squirrel’s On-Call account is one option, with returns currently at 2.25% p.a.
With the Official Cash Rate (OCR) now at 2.50%, we’re either at—or very close to—the bottom of the interest rate cycle.
Although rate reductions have been good news for borrowers, anyone with money in a bank savings account has been left to watch on helplessly as falling interest rates have chipped away at their returns.
So much so, that since the October OCR cut, a number of banks are now paying nothing—or as good as—on their simple savings account products.
The squeeze is officially on, leaving many savers wondering…where’s the best place for me to put my money?
But first, why are simple savings account rates so low?
As it so often does with the banks, it all comes down to margins.
Banks tend to price both their floating mortgage rates and savings/on-call account rates based on what’s happening with the 90-day wholesale interest rate.
That means if they move one side, they’ve got to mirror that—at least somewhat—on the other, in order to maintain their margins.
In the wake of our latest 0.50% OCR cut, for example, many of our main banks cut their floating mortgage rates by between 0.30% – 0.40%p.a., while also cutting their headline savings rates by 0.50% p.a.
On the surface, it might seem like a margin expansion—but if you zoom out and look at the big picture of their overall funding costs across their various savings products, it’s probably not.
The reason being the fact that banks pay different returns on your savings, depending on how you invest them—ranging from simple savings products at the bottom of the spectrum, through to term investments, where you earn a premium for locking your money away for a set period of time (from one month to five years).
As savings interest rates fall, people tend to move their money away from simple savings accounts, towards term investments as they try to eke out a little more interest.
Because term investments are more expensive for the banks, that raises their overall funding interest rate and compresses their margins.
When this shift happens, it results in a bit of an interest rate juggling act for the banks across their different savings products, to try and protect that overall margin they’re trying so desperately to maintain.
Hence, in order to still offer decent returns on term investments, basic savings account interest rates get squeezed. The really curious thing, to me, is that the banks can do it without anyone crying foul. Apart from Squirrel!
We’re yet to see any headlines on what’s happening with bank savings account interest rates compared with floating rate home loans—which just reinforces the oligopolistic nature of our banking sector.
With some bank savings account rates already about as low as they can get, what happens if the OCR drops further?
Following our latest OCR cut:
- Co-op Bank’s Smile On-Call account is paying a big, fat 0.00% on balances up to $3.999, and 0.10% p.a. interest on anything about that.
- ASB's Savings On Call account is paying 0.10% p.a.
- Westpac’s Simple Saver account is offering 0.05% p.a.
How these banks think that’s acceptable to begin with—with the OCR at 2.50%—is totally beyond me, but my main point is that there’s nowhere for them to go should the OCR be cut again.
(Well, they could go to negative interest rates, I guess, but that might cause a few headlines…).
That means, if we end up with the OCR at 2.25%, the banks margin on these products will simply be tightened even further.
ANZ's Online account—at 0.50% p.a.—is also getting pretty low. I doubt it'll want to lower its rate by 0.25%, and risk looking (almost) as rubbish as Westpac, ASB and Cooperative Bank.
Where should savers put their money if they want better returns?
The good news is there are a number of savings account options out there still paying decent returns, even with interest rates down as much as they are.
Across the banks, Rabobank, TSB and KiwiBank’s simple savings products are all paying north of 1.40%. At the time of writing, Heartland and BNZ are yet to move their savings rates, post-OCR, so we’ll keep an eye on what they do over the coming weeks (for now, though, they look very attractive!).
And over in the fintech space, there are a whole raft of other options offering better value for money—like Squirrel’s On-Call account, currently paying 2.25% p.a.
Reader, if you have any money sitting in one of those crappy bank savings accounts, earning next to nothing, now’s the time to be looking for better options.
Every day you wait simply helps line the bank’s pockets off those fat margins.
Unfortunately, the game that’s playing out is the same one we see every time we get to the bottom of an interest rate cycle.
And until there’s a lot more competition in the banking sector (yeah, right), AND a greater willingness for customers to move their money to better options, that’s unlikely to change.
In the absence of serious bank competition, it always pays to shop around—and don’t be afraid to look outside the big banks—in order to get the best deal on your savings.
(Interest rates quoted in this article are accurate as at 15 October 2025)