The nation’s central bank has decided to make no changes to the cash rate, a key metric used to corral the interest rate charged on home loans and savings accounts.
The Reserve Bank of Australia has announced it will hold the cash rate at 0.25 per cent, an effective lower bound rate and a historical 30 year low.
"Globally, an uneven economic recovery is under way after a very severe contraction in the first half of 2020. The future path of that recovery is highly dependent on containment of the virus," Philip Lowe said, Governor of the Reserve Bank of Australia.
"... (The RBA) will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band."
Governor Lowe had previously considered cutting the cash rate down to 0.10 per cent, an atypical cut reserved for extraordinary circumstances such as the coronavirus pandemic. The option to do so in the future -- after JobSeeker payments taper off, for instance -- remains.
Low cash rate sets the scene for cheap mortgages, but savings accounts suffer
The cash rate has been at 0.25 per cent since the RBA dropped it from 0.50 in March earlier this year, when the COVID-19 pandemic had yet to be tamed and states were instituting various lockdowns in response.
The big banks have passed on the rate cuts to home loan holders. The low cost of servicing a home loan has created an environment where refinancing to a cheaper rate could save people money, Philip Lowe previously said in an online address.
“I encourage people who haven't already taken up the opportunity to (refinance) to look at their mortgage rate and look for a better deal,” he said.
“For many years … I've been encouraging people to look at the rate they were getting from their bank, and if they weren’t getting a very low rate, go … and ask for a better deal.
“And if the bank said ‘no’, go to another bank.”
A RateCity analysis found dozens of banks had cut the rate of home loans out of cycle.
Saving rates tumble, earning you less money
The cash rate also influences the interest of savings accounts. Within the last month alone, a RateCity analysis found more than 40 banks cut the interest rate on savings accounts, including CBA, NAB, Macquarie and AMP.
The average interest cut was 0.19 per cent, resulting in an average ongoing savings rate of 0.59 per cent.
“Complacent savers are earning next to nothing in this low rate environment,” Sally Tindall said, research director at RateCity.
“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.”
The interest rate drop can lead to savers earning less money. A RateCity analysis found that if a big four bank customer with a $50,000 balance moved from a 0.05 per cent savings account, 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.
Only one big bank is bucking the trend by not cutting savings rates. Westpac is offering “an impressive” 3 per cent interest rate for customers aged 18 to 29, Ms Tindall said.