Shortly after the Reserve Bank lifted the official cash rate by a quarter of a percentage point, major lenders announced interest rates on mortgages would rise by the same amount.
Yet the interest rates that can grow their customer’s savings accounts are still “under review” – or the increases are being applied selectively – days after Tuesday’s announcement.
Given the cash rate informs funding costs, customers expect changes to flow through to mortgages and their deposit accounts.
Why the delay, given that the rate hike was widely expected and lenders had time to prepare?
According to Canstar’s data insights director, Sally Tindall, the banks are playing a game of “wait and see”.
“They’re looking to see what their customers might report back and they’re looking at what their competitors might announce before making a decision,” Tindall says.
“I don’t think that it’s acceptable. It shouldn’t be a lengthy consideration.
“It should be that if they’re passing it on to their mortgage customers, they should be passing it on to their savings rates, in full.”
There’s an obvious reason the banks don’t want to give all savers an automatic rate lift: the less paid to customers, the better their balance sheet looks.
But they do need to entice customers because such deposit accounts finance bank operations, including mortgages.
The problem for consumers is that savings products have become so complex that it’s often not clear if they are getting a good deal.
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In recent years, banks have heavily promoted bonus-interest products, which have much higher headline rates than regular savings accounts.
However, there are a range of conditions that can also trip up customers, leaving many earning almost no interest. Savers can easily be disqualified from earning the advertised headline rates when they do not make a deposit into their account each month or grow the balance. Some products also require customers to make no withdrawals.
The consumer regulator has found that about two-in-three customers with bonus accounts miss out on the headline interest rate.
When savers fail to qualify for their bonus rate, the bank gets access to their money for virtually nothing.
If it feels like the big retail banks – Commonwealth Bank, Westpac, National Australia Bank and ANZ – are being very strategic about their savings rate decisions, it’s because they are.
Two days after the rate announcement, Westpac and the CBA announced that savings rates would rise – but customers should read the fine print.
For example, the interest rate on one of Westpac’s savings products for people aged 18 to 34 will be bumped up by 25 basis points to an attention grabbing 5.25%, although there are limits on account sizes and multiple conditions.
Banks want to entice young adults into their savings products because that might translate into a mortgage down the track.
If conditions on the young adult-focused product are breached, the rate drops to just 0.1%. It’s notable the rate increase has not been applied to the base rate.
CBA increased the rate only for some of its savings products.
At the time of writing, the two other majors still have their savings rates under review, three days after the rate announcement.
The major banks were contacted for comment. NAB says savings rate changes may roll out at different times across products “reflecting differences in funding costs, market conditions, and product features”.
‘Take your nest egg shopping’
Given households are holding record levels of cash, competition for deposits is muted. This opens the way for Australia’s biggest financial institutions to play this strategic game, as opposed to having them fight ferociously for your savings.
Tindall says customers should consider “taking your nest egg shopping” to find a better deal.
“If more customers moved and chopped around more regularly, we would see a boost in that competition because banks need deposits from households to help fund their home loans,” Tindall says.
“It is an important source of their funding, and if they’re not getting enough of that in the door, then they’re going to have to post more competitive rates.”
Outside the big four banks, Canstar notes that ING’s rate on its savings maximiser has been lifted to 5%, although there are conditions and the base rate for those who fall foul of its terms is almost zero.
Macquarie’s offer of 4.5% is on track to be the highest “no-strings attached” ongoing savings rate in the market, according to the comparison site.
If the response of lenders to Tuesday’s rate increase has you seeing red, spare a thought for mortgage customers of the Bank of Queensland-owned ME Bank.
They received an email this week that said the bank was “pleased” to be passing on the rate increase in full to their variable rate home loans.
ME Bank followed up with an apology, acknowledging that “rate increases can be challenging, and we’re here to support you”.
Jonathan Barrett is Guardian Australia’s business editor
