With interest rates on the rise, many Australian consumers are shopping around for a new savings account. However, to get the best rate, many banks require savers to grow their monthly account balance. Often for new mums this is impossible, further contributing to income inequality. A “maternity savings holiday” where this condition is waived could offer a solution.

Interest rates on savings accounts vary greatly in Australia. According to the Reserve Bank of Australia, the average interest rate earned on an online savings account was 1.05% in November 2022. For bonus savings accounts it was substantially higher at 3.05%. Yet these more lucrative accounts come with conditions. In many cases, savers are required to grow their account balance to receive the top rate.

For example, ING’s Savings Maximiser Account promises 4.55% per annum. But if customers fail to add to their savings in any given month the interest rate drops to just 0.55%. Westpac, Suncorp, HSBC, and CommBank – to name only a few – have the same effective conditions.

The effects can be significant. The average amount kept in savings accounts in Australia is A$58,167 ($38,828.) according to GlobalData’s 2022 Financial Services Consumer Survey. This means an ING customer unable to save any money in a month would only receive A$27 as opposed to A$221 if they had been able to grow their balance. For many, the A$194 lost makes an important difference, especially in the current high inflation environment.

‘Grow your balance’ accounts penalties

Promoting good saving behaviour in itself is commendable, but banks’ “grow your balance” policies penalise already disadvantaged segments in their quest to capture financial activity, become a client’s main bank relationship and increase retail deposit funding.

Among those suffering from such policies are new mums. While the main caregiver (which is typically new mums) receive parental leave payments for 18 weeks (this will be increased incrementally, reaching 26 weeks by 2026), this is only paid at the minimum wage. This makes additional saving while on maternity leave nearly impossible – particularly given all the costs that come with a new baby. In addition, for mums taking a year of parental leave this means 34 weeks of no pay, and thus no means to grow their account balance.

This situation is compounded by Australian women’s savings account balance being more than A$30,000 lower than their male counterparts according to GlobalData surveying. In addition, women – and particularly new mothers – are more likely to suffer financial hardship.

Findings from our Financial Services Consumer Surveys show that 11.5% of Australians have suffered financial hardship in the past two years. This proportions jumps to 24.6% among women who had their first baby within the last two years.

Banks’ strategies fail new parents

Some new mums might decide to opt for a joint account with their partner to be able to receive the bonus rate. Yet for single parents this is not an option. And in any case, encouraging women to give up their account seems like an archaic solution.

With this in mind, banks’ policies should be aimed at supporting new parents – not penalising them if they fail to save. Linking a grow-your-balance policy to a bonus interest rate allows providers to establish the desired primary banking relationship as it ensures that all in-goings are deposited with that provider. Banks need to consider how they can adapt these established savings products to new parents at a temporarily high-cost but low-income period of their life. Helping them maintain the value of their savings at a moment of truth for the banking relationship is likely to prove lucrative long term as these customers seek new mortgages for bigger family homes or otherwise increase their spending on their children. This outcome will be fully worth any extra higher interest payments.

Heike Van Den Hoevel is Principal Wealth Management Analyst, GlobalData