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What to expect if the RBA cuts the cash rate next week

What to expect if the RBA cuts the cash rate next week

The Reserve Bank of Australia is tipped to cut the cash rate next Tuesday for the third time this year. Aussies everywhere will no doubt be wondering how much their banks will pass on to them.

If the Reserve Bank of Australia (RBA) cuts the cash rate yet again on Tuesday, it will fall to a new historic low of 0.75 per cent.

And if the June and July cash rate cuts are anything to go by, mortgage holders will continue to come out on top, and savers may find themselves considering hiding their money under their mattress. 

Scary news for savers

Savings accounts have been hit hard since the two RBA cash rate cuts. Many Aussies rely on the interest earned on their savings. From budding first home buyers trying to save for a deposit, to retirees just trying to get by on their hard-earned nest egg.

In fact, RBA governor Philip Lowe reported receiving daily letters and emails from frustrated savers asking if he’d “forgotten about them” following the second cash rate cut.

RateCity research found that the big four banks dropped conditional savings account rates by an average of 47 basis points since March - pre-RBA cash rate cuts.

Conditional savers - big four banks

Bank

Max savings rate pre-cuts

(21 March)

Max savings rate post-cuts

(18 Sept)

Difference

CBA

1.65%

1.15%

0.50%

Westpac

2.30%

1.90%

0.40%

NAB

2.30%

1.86%

0.44%

ANZ

2.40%

1.85%

0.55%

Source: RateCity.com.au. Note: Based on a balance of $25k. Data accurate as at 25 September.

ANZ conditional savings accounts fell by 55 basis points from March to September. Only this week ANZ cut the base interest rate on its online saver to 0.10 per cent. Given that the cash rate fell 50 basis points this year, ANZ customers might be feeling the pinch right now.

What to expect:

There’s little incentive at the moment for banks to attract customers with high interest rates or promotions, such as cash back deals. If history is anything to go by, savers might need to brace themselves for banks passing on more cuts, if not the full 0.25 per cent, to their savings account interest.

However, it’s not all doom and gloom. Savers should consider hopping online and doing some research around which provider is offering the highest savings rates. Even if they’re lower than one would like, there’s no reason to be complacent. Switching to a more competitive savings account might be a way to stay on top of all the cuts – as long as you meet the new account conditions.

Conditional savers – market leaders

Company

Base rate

Max rate

Conditions

MyState Bank

0.80%

2.50%

Deposit of $20 in everyday acct, make 5 transactions each month

Up

0.50%

2.50%

5 card purchases from everyday acct

86 400

0.40%

2.50%

Deposit of $1000 in everyday acct

BoQ

0.35%

2.50%

Deposit of $1000 in everyday acct

UBank

1.35%

2.41%

Deposit of $200 in everyday acct

Source: RateCity.com.au. Note: Based on a balance of $25k. Data accurate as at 25 September.

Happy days for homeowners – if they take action

When they RBA cuts the cash rates, Aussies with home loans usually get relief if their lender passes on those cuts. But that’s a big if, as not every lender passed on the full 25 basis point cut in June and in July.

RateCity research found that the average rate cut passed on to homeowners following two cash rate cuts was 43 basis points.

What the big four banks passed onto variable rate home loan customers

Lender

June rate cut

July rate cut

Total rate cut

CBA

0.25%

0.19%

0.44%

Westpac

0.20%

0.20%

0.40%

NAB

0.25%

0.19%

0.44%

ANZ

0.18%

0.25%

0.43%

Note: the above rate cuts are for owner occupiers paying principal and interest. In July CBA gave a 0.25 per cent cut to customers paying interest-only, while Westpac handed down a 0.30 per cent for investors paying interest-only.

CBA and NAB variable rate home loan customers came out on top of the big four banks, with 0.44 per cent cut from their home loans. Westpac variable rate home loan customers fared worse, not receiving a full rate cut once in June or July.

What to expect:

A full 0.25 per cent rate cut may not come from the big four banks if the RBA cuts the cash rate next Tuesday.

Given that saving rates are approaching zero, the pressure is on the banks to balance the wants and needs of mortgage borrowers and savers. On top of this are the needs of shareholders expecting the banks to make a profit. It will be difficult for all lenders to pass on another full rate cut without effecting shareholders. 

Chances are, the best way to get a full rate cut will be to give yourself one.

Savings if you give yourself a 0.25% cut

Loan size

Old rate

New rate

Monthly difference

Annual difference

$300,000

3.91%

3.66%

$43

$512

$400,000

3.91%

3.66%

$57

$682

$500,000

3.91%

3.66%

$71

$853

$750,000

3.91%

3.66%

$107

$1,280

$1 million

3.91%

3.66%

$142

$1,706

Source: RateCity.com.au. Note: 3.91% is average home loan rate on RateCity database on 25 September. Assumes an owner occupier paying principal and interest over 30 years.

Hop on to a comparison table and look what lower rates are offered by other lenders. You’ll also want to see what lower rates your own bank is offering new customers. Call up your lender and ask them to match these lower rates.

If they’re not prepared to give you a rate cut, you may want to consider refinancing to one of the lower rate loan options you’ve already found. There are many lenders offering home loan rates starting with a 2, so it doesn’t hurt to look. 

How to talk your way to a lower interest rate:

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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