Interest rate environment offering customers polar opposite effects

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August 02 2019
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Data has shown that the Reserve Bank of Australia’s lowering of the cash rate has had a huge knock-on effect at opposite ends of the spectrum for both savers and spenders.

New research from Canstar has analysed the changes made by authorised deposit-taking institutions (ADIs) since the official cash rate became 1.00 per cent.

Home loans

According to Canstar, out of 1,025 variable and fixed rates offered to the market, 1,015 have reduced their rates, while only 10 offerings have posted increases to fixed rates.

The variable rate cuts were from 79 lenders, while 44 cut their fixed rate services, with an average cut for July of 0.20 per cent for variable loans and 0.39 for fixed rates.

Canstar’s group executive for financial services, Steve Mickenbecker, said lower rates are able to help lenders attract new businesses without reducing profit margins.

He explained that decreases to variable rates were expected in July following the second Reserve Bank cash rate cut in as many months, but the slashing of some fixed rates might have taken some by surprise.

“The cuts to fixed rates reflect the low cost to lenders of funding their loan book for longer terms in a falling rate environment here and overseas,” Mr Mickenbecker said.

12-month term deposits

In July, 54 institutions made cuts to their 12-month term deposits.

It brings the total number of lenders that have reduced their rates since the June cash rate to 63.

The average 12-month term deposit is now 1.93 per cent for investors with $25,000, down from 2.10 per cent on 1 July and 2.29 per cent on 3 June.

This means that following on from the Reserve Bank’s 50 basis point cut, 12-month investors are now facing a 36 basis point reduction.

“Even though term deposits have taken a hit following the recent cash rate cuts, they remain a bit of a safe haven at almost 1.00 per cent above savings rates,” observed Mr Mickenbecker.

“But it’s only relative and hardly enough to retire on,” he continued.

Saving accounts

In July, 51 institutions made cuts to the base rates for at-call savings accounts. Following the change in rates, the average call savings accounts for an investor with $10,000 is now 0.98 per cent, down from 1.15 per cent on 1 July and 1.30 per cent on June 30.

This has had the effect of bringing down base rates by 0.32 per cent since June.

“For the bulk of savers, it is even worse,” Mr Mickenbecker flagged, with online savings account base rates below 0.15 per cent “and with zero looming at the next cut”.

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About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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