Banks raising rates on loans but not deposits
The RBA has sounded the alarm over low deposit rates and banks’ profit margins rising without passing the benefits on to depositors.
Somehow the big banks managed to pull off another massive swiftie in the wake of the RBA’s latest interest rate hike.
All four dutifully passed on the 25-basis point rise to their home loan customers but when it came to their deposit interest rates, they were remarkably silent.
Sure, there were some targeted deposit rate rises on highly qualified deposit products but when it comes to system-wide deposit rate rises on everyday accounts that people actually use, there is a distinct double standard between borrowers and depositors.
RBA worried about low deposit rates
Even the Reserve Bank of Australia (RBA) has been alarmed by this trend, pointing out in its latest statement on monetary policy that there are “around 15% of at-call balances on which banks pay no interest to depositors”.
The RBA also indicated bank profits should be rising given that deposit funding costs had increased in calendar 2022 by less than the cash rate.
Treasurer Jim Chalmers has been jawboning the banks into passing on rate rises to depositors but even those warnings and threats of an Australian Competition and Consumer Commission (ACCC) inquiry seem to have fallen on deaf ears.
ACCC on the case but banks don’t seem worried
For its part, the ACCC has said the rise in deposit rates has been “lower, slower, conditional or temporary”.
That should be providing an increase in the net interest margin (NIM) the banks are getting – effectively the difference between what borrowers pay the bank in interest and what the bank pays out to depositors.
Consumers need to shop around
As a consumer, the important thing to do is to be very active in seeking out the best deposit interest rates because this is one loyalty tax that can be particularly costly.
Shopping around for the best term deposit rates is one strategy, although not everybody can commit funds for a period of time.
In the at-call account space, there are a confusing array of product choices which are highly conditional if you want to get the best interest rate.
It is a case of checking through all of the options and finding the “least worst” product that suits your needs and has the easiest conditions to fulfil.
There are some other options such as BetaShares Australian High Interest Cash ETF (ASX: AAA), which pays out interest monthly.
It is certainly not a bank account and you need to pay brokerage for purchases and sales but you will get much closer to wholesale deposit rates than with many other highly conditional deposit products.
Otherwise, it is a case of using comparison websites to find the best rate with conditions you can live with.