Higher and higher we go

SOME of us with term deposits could benefit from the interest rate bump by the big four banks, while those of us who are borrowers bear the brunt of an increased loan repayment rate.

THE big four banks (Commonwealth Bank, ANZ, National Australia Bank and Westpac) defied the Reserve Bank of Australia’s move to place interest rates on hold at 4.25% and this week made statements about borrowers possibly facing more rate hikes in the near future to meet funding costs.

Commonwealth Bank increased its variable home loan rate by 0.1% to 7.41%, ANZ bumped its rate up by 0.06% to 7.36%, Westpac added 0.1% to 7.46%, while National Australia Bank lifted its rates by 0.09% to 7.31%.

“If the big four banks have decided to stop listening to the RBA, it’s time for consumers to send them [the big four banks] a message they can hear loud and clear, shop around and if you find a better deal, move your money,” the people’s watchdog Choice campaign director Christopher Zinn said.

“The banks have already put the fat on the fire. If they [the banks] were to sneak through another out of cycle increase or greater increase that is higher than what the RBA announce, the big banks could be throwing petrol on the fire.”

Choice said consumers needed to see the other side of the coin in claims over funding costs. It believed the big four banks should back up their decisions about home loan rates with evidence, including publishing reasons for any rate changes.

If the RBA released its minutes for its board meetings, there was no reason why the banks shouldn’t have to.

“The whole argument about funding costs draws attention away from the fact we have some of the most profitable banks in the world that are very well placed to pass on any savings to their customers,” Zinn said. “We think Australian consumers have the right to see when costs are increasing, decreasing and judge whether they are getting a fair deal.”

Research by Choice and the latest data on bank profitability released by the RBA raised the questions around the banks’ claims. The watchdog believed clearer disclosure would help the public debate.

Meanwhile, the Australian Bankers’ Association claim funding is increasing, in part because “banks have continued to pay high interest rates on depositors, benefiting Australian savers but adding to the cost of bank funding”.

However, Choice’s research last year highlighted that $153 billion was being held in low or no-interest transaction accounts that also charged hundreds of millions of dollars in fees.

In addition, the latest data from the RBA on bank profitability revealed an upward trend in the major banks’ net interest margin.

“The massive amounts in low to no-interest deposits has to be the cheapest funding possible and undermines the claim that increasing deposits are the cause of higher mortgage rates,” Zinn said. “Banks seem to want it both ways, paying next to nothing for deposits in transaction accounts and increasing interest margins on home loans. Consumers need to look closely at what their bank is offering them and question any move to increase mortgage rates at this time.”

Meanwhile, the government needs to push for more competition in the banking sector, through encouraging switching and breaking down some of the barriers involved with it.

“While we have a very secure financial system, it does not necessarily mean it is a great banking system from a consumer’s point of view,” he said.

Zinn said Choice was encouraging consumers to look at moving to smaller credit unions, as it could make more sense financially.

“Contrary to the massive amount of spending that the [big four] banks throw at marketing, you don’t have to be with them to get the best deal.”

Click here for more information on Choice’s comparison tool.