Banks are pocketing big savings by refusing to pass on interest rate rises to investors and earning an estimated $600 million a month as a result.
That’s the conclusion of research reported in The Australian and with another rate hike today, those ‘earnings’ are only getting bigger – perhaps at your expense.
The Reserve Bank of Australia (RBA) today announced a 0.5 per cent increase following its monthly review.
The RBA has now lifted interest rates for five months straight, taking the official cash rate from a record low of 0.1 per cent to 1.85 per cent. Analysts predict the RBA will continue to increase the cash rate into next year.
Banks generally move quickly to pass on any rate rises to its loan customers, but are less keen to increase interest rates on savings or term deposit accounts.
Treasurer Jim Chalmers has urged banks to give their customers “a fair go”, noting “people are rightly asking why interest rate increases don’t always get passed on as quickly for savings as they do for mortgages”.
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Ratecity.com.au analysed data following the 0.25 per cent May increase and found in many cases the banks raised interest rates only on select savings accounts, not across the board. Of the 16 accounts it audited across the big four banks – ANZ, Westpac, NAB and CBA – interest was raised on only six savings accounts.
RateCity.com.au research director Sally Tindall says: “Savers hoping to get a big boost with the RBA hike shouldn’t hold their breath.
“Following the May RBA hike, the banks were quick to hike their home loan rates, yet two out five banks didn’t touch their savings rates.
“For the banks that did increase savings rates, in many cases only select accounts were hiked, while others stayed dismally low.”
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In an address to the Australian Strategic Business Forum in July, RBA governor Philip Lowe said “further increases will be needed in the months ahead”. He said the aim was to return inflation to a 2–3 per cent target range with “a more sustainable balance between demand and supply”.
ANZ and Westpac have tipped the cash rate will hit 3.35 per cent by November. NAB has forecast 2.85 per cent and CBA 2.6 per cent.
Banking comparison site mozo.com.au says that is a great opportunity for consumers.
In-house banking expert Peter Marshall says “the term-deposit wars have just started”, and predicts the market will heat up in the next 12 months.
“It’s worth waiting another couple of months. Either that or put some money on a six-to-12-month deposit now and take advantage of better rates when it matures,” he says.
“I’m not sure how much further they’ll go up or whether the jumps will be as big as we’ve seen, but my feeling is it’s better to wait just a little bit longer right now. The competition has only just started to heat up.”
Last month, ANZ announced it was increasing the interest rate on two of its accounts, including a deposit rate of 3 per cent on its 11-month Advance Notice offering.
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ANZ group executive Australia retail Maile Carnegie says: “We realise the persistent low-rate environment of recent years has been challenging for savings customers, so today we have tried to provide some relief for them with a range of deposit rate increases.”
While rate increases are a burden for those with loans, it seems there are plenty of Aussies with money in the bank. According to Commonwealth Bank research, Australians boosted their ‘rainy day’ funds by almost 50 per cent during the pandemic.
RateCity’s Ms Tindall says it may be time to shop around.
“Customers who aren’t happy with their bank’s response to the cash rate hikes can always vote with their feet and take their business elsewhere,” she says.
“Savers may need to shop around and be willing to jump through a few hoops to qualify for higher interest rates.
“While the average big four bank ongoing savings rate is 0.41 per cent, the highest rate for all adults is 1.6 per cent from Virgin Money, while young adults can get up to 3 per cent from BOQ.
Did you increase your savings during the pandemic? Are you shopping around for the best interest rates? Why not share your tips in the comments section below?If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.
Great Southern Bank have good Term Deposit rates:
6-Month Term Deposit Interest at maturity. Min investment $5,000 2.50% p.a
9-Month Term Deposit Interest at maturity. Min investment $5,000 2.70% p.a
12-Month Term Deposit Interest annually. Min investment $5,000 3.00% p.a
3-Year Term Deposit Interest annually. Min investment $5,000 3.40% p.a.
OR
IMB Bank has one good Term rate, the rest not as good:
12 Month Term Deposit 3.10% pa Minimum $5,000, interest paid on maturity
Finally, higher rates than Centrelink has demanded for years are available.
New Centrelink Deeming rates from 20 September 2022:
For singles – Amounts up to $56,400 are deemed to earn the lower deeming rate of 0.25%. That portion over $56,400 is deemed to earn the higher deeming rate of 2.25%
For couples – Amounts up to $93,600 (combined) are deemed to earn the lower deeming rate of 0.25%.
Absolutely shopping around. When the RBA first started raising rates any TD that was maturing was deposited for a 3 month period. Those are now maturing and we are reaping rewards but still only depositing for 6 months with maturity in February when, hopefully, the interest rates may have stabilised….and increased further!
Further if one has a TD with a, now, very low interest rate and a bit of time until maturity – contact your bank/institution and request to redeem the TD. There is a fee for early maturity but you will more than make up for it with the higher interest rate. We had one that was invested at .65% that will be paid into our bank next week and will be re-invested at a much higher rate, making it more than worthwhile to do the redemption. There is a 31 day notice period for redemption.
The smaller banks and nano bank, Judo, pay much higher rates than the big banks. We now have no TD with any of the big 4.