Australian household savings are expected to grow strongly in the next five years but banks need to look at other ways than pricing to attract new businesses, fresh data has revealed.

The latest forecast by Datamonitor says Australian retail deposits market, which has been the main focus for most of the Australian financial institutions since the global financial crisis, will remain one of the key sectors in 2011.

Household savings across all banks are expected to reach A$694bn by 2015, which is equivalent to a CAGR of 8.79 per cent. This is a relatively modest growth in relation to the similar figure recorded over the last seven years (2003 - 2010), which was boosted by the Australian government's guarantee scheme for retail deposits, introduced in October 2008.

“Over A$238bn of new savings from Australian households is expected in the next five years, showing the importance of this sector to the overall banking industry in Australia,” said Datamonitor senior analyst Harry Senlitonga.

One of the drivers is the consumers appetite of investment risk will remain low.

According to a 2010 Datamonitor survey of Australian consumers, 35.4 per cent of investors increased their holdings of cash products such as high interest savings accounts, by either adding existing accounts or opening up new ones. This trend is similar to that seen in 2009, when uncertain conditions and a global recession caused investors to take shelter in cash products.

For the next few years, Datamonitor sees some opportunities and challenges for Australian deposits providers. The tax breaks announced by Australian government for many Australian savers, which is planned to start in 2012-2013 financial year, may provide a small boost to the retail deposits sector. This initiative will offer a 50 per cent tax discount on the first A$1,000 of interest earned.

The main challenge for most deposits providers is to compete beyond pricings, interest rate and fees, to attract new customers.

“Unprecedented offers on savings account rate and fee-slashing campaigns on transaction account in the last few years have left small rooms for banks to compete on pricings. It’s time for banks to look at other ways to compete, such as improving customer experience through different service channels and also product design,” Senlitonga said.