No RBA cut likely, yet banks keep stinging savers

Savers are continuing to be stung by falling interest rates even though the Reserve Bank isn’t expected to cut the cash rate today.

RateCity.com.au analysis shows in the last month:

  • More than 40 banks cut saving account rates, including CBA, Macquarie Bank and AMP.
  • Average cut was 0.19 per cent.
  • Average ongoing savings rates is now 0.59 per cent.

RateCity.com.au research director Sally Tindall, said: “complacent savers are earning next to nothing in this low rate environment.”

“Seventy-six per cent of all household deposits are held by the big four banks, yet they’re the ones offering some of the lowest ongoing savings rates on the market.

“Customers earning 0.05 per cent on their hard-earned cash should pick their savings off the floor and move to a higher rate.”

RateCity.com.au analysis shows if a big four bank customer with a $50,000 balance moved from 0.05 per cent, to the highest ongoing rate on the market of 1.65 per cent, they could earn an extra $806 in interest in 12 months, provided they met the terms and conditions and interest rates remained the same.

“The only big bank bucking the trend is Westpac, which is stumping up an impressive 3 per cent for customers aged 18 to 29,” she said.

BANKS FLUSH WITH CASH - APRA

Savings rates have been plunging at the same time deposits have hit an all-time high. The latest APRA statistics show the total bank deposits from household increased by $64.4 billion since the start of COVID-19 (March 2020) and $100.4 billion year-on-year.

Tax refunds, the second round of COVID super payouts and months of low-cost lockdown living have contributed to the increase in deposits this July.

“Deposit are at an all-time high, which makes it even harder for banks to offer decent savings rates. They don’t need to attract new savers – they can’t even afford to offer respectable returns to the customers they’ve got.

“Macquarie Bank last week slashed its introductory rate by 0.50 per cent to 1.50 per cent while AMP terminated its welcome rate altogether,” she said.

APRA monthly banking statistics: deposits from households

  % change $ change
Month on month change (June - July 2020)

3.0%

$30.7 billion increase

Since COVID

(March - July 2020)

6.4%

$64.4 billion increase

Year-on-year

(July 2019 - July 2020)

10.4%

$100.4 billion increase

Deposits from households on the books of Authorised Deposit Taking Institutions (ADI's). Source: APRA Monthly Banking Statistics, July 2020, issued 31 August 2029.

Big four bank savings changes

The average big four bank conditional savings rate has dropped to 0.92 per cent in the last year, while the cash rate has dropped by 0.75 per cent.

Big four bank conditional savers: then and now

Bank Max rate –

1 year ago

Max rate - today Difference
CBA GoalSaver

1.15%

0.50%

-0.65%

Westpac Life

1.95%

1.00%

-0.95%

NAB Reward Saver

1.86%

0.90%

-0.96%

ANZ Progress Saver

1.95%

0.85%

-1.10%

Average

1.73%

0.81%

-0.92%

Source: RateCity.com.au. Based on a balance of less than $50K. CBA has higher rates for higher balances. Based on accounts with no age restrictions.

Big four bank standard savers: then and now

The average big four bank introductory rate has dropped by 1.12 per cent while the ongoing savings rate has dropped by 0.09 per cent.

  1 year ago Today
Bank Intro rate Ongoing Intro Ongoing
CBA Netbank Saver

2.00%

0.15%

0.95%

0.05%

Westpac eSaver

2.01%

0.15%

1.00%

0.05%

NAB iSaver

2.11%

0.11%

0.95%

0.05%

ANZ Online Saver

1.95%

0.15%

0.80%

0.05%

Average

2.02%

0.14%

0.93%

0.05%

Source: RateCity.com.au Intro rate terms - CBA & Westpac 5 months, NAB 4 months, ANZ 3 months.

Highest ongoing savings rates on RateCity.com.au
Bank Max rate Conditions for max rate
ING 1.65% Deposit pay of $1,000+ and make 5+ card transactions per month.
MyState Bank 1.65% Deposit $20+/mth and make 5+ purchases in linked account.
CUA 1.60% Deposit $1000+/mth into a linked account.
UBank 1.60% Deposit $200+/mth into a linked account
Move Bank 1.60% Deposit $200+/mth and no withdrawals
86 400 1.60% Deposit $1000+/mth into a linked account.
Up 1.60% 5+ card purchases from linked account
Source: RateCity.com.au Excludes accounts with age restrictions.

*Average rate of the savings accounts on RateCity.com.au assuming intro rates have expired, and that monthly terms and conditions are met and excludes accounts with age restrictions.

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

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The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.