RBA rate hikes: how much will the banks pass onto savers?

While households with mortgages are bracing for pain, Australian savers will be eagerly anticipating the upcoming RBA cash rate hikes.

For the last decade, savers have watched their interest rates tumble. With the cash rate at emergency setting levels of just 0.10 per cent, many savers are now on ongoing savings rates of as little as 0.05 per cent.

Source: RBA. Average of 5 largest banks’ rates.

Don’t bank on your bank passing on every cash rate hike in full

Some forecasts predict the cash rate could rise to 2 per cent by this time next year, however, there’s no guarantee the banks will pass on every one of these hikes in full to savers.

Analysis by RateCity shows the big four banks cut their goal saver rates by an average of 1.27 percentage points since COVID, while the RBA cut the cash rate by just 0.65 percentage points in this time.

Big four bank goal saver rates – pre-COVID vs now

Source: RateCity.com.au. Notes: Rates are from 1 Feb 2020 and 2 May 2022 on the big four banks’ goal saver accounts. CBA rates are for deposits of $50K - $250K.

How much extra could savers earn if the cash rate hits 2% and banks pass the hikes on in full?

RateCity has crunched the numbers to see how much extra someone could earn if the cash rate hits 2 per cent, and their bank passes on all the rate hikes in full.

These calculations are based on the RBA average bonus savings rates, applying Westpac’s economic forecast, which predicts the cash rate will hit 2 per cent in May 2023.

RateCity estimated someone with a $50,000 deposit could earn an extra $80.68 a month in interest by May next year, in this scenario.

Interest earned today vs potential interest earned

Source: RateCity.com.au. Calculations are based on the average banks’ bonus savings rates as recorded by the RBA, with a balance of $50k and that customers qualify for the maximum interest. Rates in May 2023 assume Westpac cash rate forecasts are passed on in full. Calculations do not include any additional deposits made over this time.

RateCity.com.au research director, Sally Tindall said: “Savers may finally have something to smile about after two years of earning next to no interest.”

“With inflation surging at the fastest pace in two decades, and savings rates at all-time lows, most people’s hard-earned cash has been going backwards. It’s time to turn this around,” she said.

“While we expect banks to finally start lifting deposit rates, there’s no guarantee they’ll mirror the RBA the whole way.

“Banks are full to the brim with cash. This will make it a costly exercise to pass these hikes on in full, but that’s what they should do.”

The latest APRA statistics for March show Australian households have a total of $1.26 trillion in the bank – an increase of $272.4 billion since COVID.

“The irony is, the more money we put in the bank ready for a rainy day, the less likely the banks are to offer competitive rates.

“If the RBA hikes, find out what your bank intends to do. If your savings rate isn’t increasing, it could be time to move your business elsewhere,” she said.

Source:RateCity APRA, RBA.

Household deposits in banks: APRA

Source: RateCity. Deposits data released by APRA, 29 April 2022.

Big four bank: current conditional savings rates

Source: RateCity Conditions apply for max rate. Data accurate as of 02/05/22

Highest ongoing savings accounts (no age restrictions)

Source: RateCity,Data accurate as of 02/05/22

Young Adults: highest ongoing savings rates

Source: RateCity. Conditions apply for max interest rate. Data accurate as of 02/05/22

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