"It's a sore point with me," the 85-year-old full-rate age pensioner says.

"It makes me feel angry at the banks because before we were getting 5 per cent or 5.5 per cent on a fixed deposit account [term deposit]," he says.

With interest rates so low, savings accounts are not paying much. George is lucky if he can get much more than 2 per cent.

His experience is shared by many other pensioners with modest savings with banks, mutual banks and credit unions.

George says he is frugal with his money, but the Sydneysider finds it difficult to afford a domestic holiday after paying for expenses including electricity, gas, CTP insurance on his car and house insurance.

Paul Versteege, policy co-ordinator at the Combined Pensioners and Superannuants Association, says the only practical option for pensioners with modest savings is to bank their money.

"The real problem is the fact that bank interest rates are now lower than anybody can remember," Versteege says.

Even locking away the money for a fixed term pays interest that barely keeps pace with increases in living costs.

Figures from comparison site finder.com.au show the average interest rate paid on three-month term deposits is 2.13 per cent, on six months it is 2.27 per cent and on 12 months it is 2.42 per cent.

Next to nothing is earned on standard transactions accounts.

Recently, the Commonwealth Bank slashed some of its term deposit rates, just two months after boasting of increases.

Online savers can pay up to about 3 per cent in total, made-up of a base rate and a bonus rate.

To earn the bonus rate there are usually conditions such as, among others, adding a certain minimum amount to to the account each month.

And the bonus is usually available only for a limited period – typically a few months.

That means savers would have to be willing to switch online savers when the bonus period ends and many pensioners, like George, do not trust doing banking over the internet or are not even connected to the internet in the first place.  

Deeming accounts

Most financial institutions have special transactions accounts for pensioners that will either be called "deeming" accounts or have the word "pensioner" in the account's title, for example.

"Deeming" is the amount of interest that the government deems pensioners' investments have earned, regardless of the actual rate of returns, and is used for calculation of pension payments under the income test.

For a single pensioner, the deeming rate is 1.75 per cent on the first $49,200 and 3.25 per cent on the income above that.

If an account has "deeming" in its title it usually pays the deeming rates at the single rates.

They are usually fee-free, or have very low fees, and some have no charges for transacting over the counter at branches.

Justine Davies, editor-in-chief of comparison site Canstar, says pensioners should be careful about keeping their money in accounts that are marketed to pensioners but pay less than the deeming rates.

For example, the Commonwealth Bank has a Pensioner Security Account that pays 0.25 per cent on the first $2000, 1 per cent on the portion of the balance between $2000 and $49,200 and 2.25 per cent on the portion of the balance over $49,200.

Other banks have very similar offerings, paying mostly the same tiered interest rates as the Commonwealth Bank.

Despite interest rates coming down, the government has left its deeming rates unchanged and more financial institutions have discontinued their deeming accounts.

Davies says "true" deeming accounts – those that actually pay the deeming rates – have been retained by only a limited number of small banks and credit unions including, among others, Defence Bank, Hunter United and Select Encompass Credit Union.

Darren James, an AMP financial adviser in Adelaide, says pensioners should be shopping around to see if they can earn a bit more.

"It's really about structuring those accounts depending on what you are using the money for," James says.

"If you do not need it for 6 or 12 months then having that money in a deeming account is not the ideal as you are not going to be transacting the money anyway," he says. The money could be put in a term deposit instead.

George does shop around, at least among the cash accounts offered by his bank, St George, which is owned by Westpac.

"I've separate accounts at St George so that when the interest drops on one I can check up on the others and transfer the money to another account to get a little bit more interest," he says.

George has five savings and transactions accounts, including a cheque account, with his bank.

George says it is annoying and sometimes confusing to have to shift his money between accounts to chase the best interest rates.

He wishes he had just a couple of accounts that paid a decent amount of interest. 

Lower rates to come

With interest rates already at historic lows they could go even lower if inflation remains weak, says Bessie Hassan, money expert at Finder.

One in three experts told a recent Finder survey they expect a third cut to rates this year in either November or December.

A further 39 per cent are expecting a fall in the first half of 2017 and a further 15 per cent later into next year.

The prospects of even lower interest rates do not thrill George.

"If they keep lowering interest rates we will end up with the banks not paying anything for our money and we will end up paying them for keeping our money," he says.