why-dont-banks-pass-on-rate-increases-to-savers

And how can you earn more?

The Reserve Bank increases the cash rate….

Homeowners face mortgage stress…

And banks pass on rate rises in full

Well that last one isn’t true is it?  Or at best half true. The banks pass on rate rises in full very very quickly when they lend money.  Those with mortgages or credit card debt will be in no doubt about that.  But they take their time in passing on the benefits to savers, and typically don’t pass on the full amount.

So why is that?

Well the obvious answer is that they are in business to make a profit.  The bigger the gap between their lending rates and their deposit  rates the bigger the profit they will make.  That’s good for bank shareholders but not so good for the rest of us.

Steve Mickenbecker from Canstar was scathing when he said “Banks are skimming a margin off the RBA’s increases in the cash rate by not passing on the full amount to savers.”

The Federal Treasurer Jim Chalmers urged the banks to pass on the rate rise to savers saying “Savers have had it tough for some time with historically low rates, and they should get this relief passed on in full”.

But the banks march to the beat of their own drum, not the Treasurer’s.

What can you do about it?

Well to start with, you can shop around.  There are some pretty good deposit rates out there but you might have to do your own research.  Some of those attractive deposit rates are introductory promotional rates designed to get new customers.  These rates are often not available to existing customers.  How is that for loyalty?  They also only last for a limited time.

Typically you will get better rates for a term deposit than cash accounts but this is because your money is locked up for a period of time.  So Canstar offers some helpful hints on what to look out for when considering a term deposit.

  • the interest rates on offer,
  • if there is a required minimum amount to deposit,
  • how long you wish to deposit your money for,
  • if the deposit rolls over at the end of the term,
  • whether and how you’ll be notified at the end of the term, and
  • whether you will be allowed to make an early withdrawal should you decide to.

If you have money to invest, cash is certainly an option but you might also want to look at options with the potential for higher long term returns.  What is best for you can depend upon your risk tolerance.  It’s often helpful to learn more about your own tolerance which, If you book a consultation, our financial advisers can help you to better understand.

So what do you think about the rising interest rates?  Are you a borrower or a saver? And if you are a saver, do you feel the banks are offering attractive interest rates?

Or do  you agree with Steve Mickenbecker that they are skimming a margin?

 

Book a risk tolerance consultation

 

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.