No RBA cut likely, yet banks keep stinging savers

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

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

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.

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.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

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.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

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 is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.