Mozo Money Moves: RBA holds as savvy savers eye a golden opportunity

Welcome back to another edition of Mozo Money Moves, where we wrap up the week that was in personal finance and call out any interesting rate changes flying under the radar.

RBA Moves

This week, the Reserve Bank of Australia (RBA) decided to hold the cash rate at 4.35%. RBA Governor Michele Bullock revealed a rate hike was discussed, but that they decided instead to wait for supply and demand to balance out inflation, rather than inflicting more pain on mortgage holders by hiking for the 14th time. 

During the RBA’s press conference, questions arose about whether Australia would follow the lead of other central banks, such as the European Central Bank (ECB) and the Bank of Canada, both of which have recently cut their rates. 

However, Bullock explained that Australia's economic conditions are different, and our unique inflation challenges means we cannot just follow other central banks. Canada is dealing with an unemployment rate over 6%, and the ECB has faced weak growth for over a decade, while Australia’s economy is remaining resilient.

“The decision reflects the RBA's cautious approach, aiming to avoid additional hikes unless absolutely necessary, and their clear focus on domestic conditions rather than simply playing a global game of ‘follow the leader’ when it comes to cutting rates,” says Mozo’s personal finance expert Rachel Wastell.

“For Australian homeowners anxiously awaiting a rate cut to ease their home loan repayments, the RBA's decision may come as a disappointment, but as unemployment is still quite low, most Australians are retaining jobs which provides some level of financial stability in a high rate environment.”

Bullock also touched on the anticipated rise in real income later this year or early next, and how this will be crucial for economic stability.

“Although the possibility of a rate cut was not on the table, and a potential hike was discussed, Bullock made it clear they do not want to hike the cash rate again, but will do whatever it takes to get inflation back to target.”

“She also mentioned that the boost to after-tax income coming from the new Federal Budget, that offers an opportunity for homeowners to make extra repayments into their mortgage or put the extra income into an offset account, to reduce interest repayments without a rate cut.”

"While Australia's inflation challenges remain the focus for the RBA, it is clear the central bank is prioritising long-term economic stability over short-term relief, and will be looking at the June Quarter CPI results before making any rash decisions to hike the cash rate again.”

RBA Insights

• The Reserve Bank of Australia (RBA) continued its cash rate freeze on Tuesday, but what does this mean for mortgage holders?
• As the economy recovers from disruptions, interest rates may come down in 2024, even as early as November - so what are the experts predicting?
• Bullock mentioned the rise in real income due, which is partly a result of the new Federal Budget coming into effect 1 July 2024.

Home Loan Moves

This week it was a little quiet on the home loan front, but despite another RBA pause some lenders have still been shifting rates, with Credit Union SA making moves on both variable and fixed rates (cuts and hikes) and AMP cut a number of fixed rates across varying terms.

The Bank of Sydney hiked variable rate home loans between 5-20 basis points, along with Credit Union SA that hiked some rates by 20-40 basis points.

Credit Union SA also made a 25 basis points rate cut to its variable rate packaged home loan, and Auswide cut a few variable rates by 10-15 basis points.

These small changes, however, were not enough to shift the average variable rate on the Mozo database, which still sits at 6.80%p.a. (based on a $400k owner occupier loan paying principal and interest on a 25 year term, with an LVR of 80%).

In the fixed rate space, AMP came forward with a slew of cuts to fixed rates, on 1,2,3 and 5 year terms, and Credit Union SA cut most of its 1 year fixed term rates. Credit Union SA also hiked some fixed rates, focusing on those 2 and 3 year terms.

“These small changes that occur in the Mozo database to home loan rates prove that just because the RBA isn’t moving the cash rate, doesn’t mean rates stand still,” stressed Wastell.

“Mortgage holders can often think a hold in the cash rate means they are safe from rate moves, but if you have a home loan you need to be checking your rates.”

“Banks use rates as a way to hedge their bets on where the cash rate will go, and I do think we are in for a few more changes in the coming months, especially after the RBA made it clear they are not ruling anything in or out.”

“Borrowers need to keep an eye on what their lenders are currently offering, especially to new buyers, as this could help them  negotiate a better rate, especially if they can’t meet serviceability buffers to be able to refinance to a cheaper home loan.”

Home Loan Insights

• Although the RBA held the cash rate, this doesn’t mean rates aren’t moving. So which lenders have shifted home loan interest rates?
• More rate rises are the last thing Aussie mortgage holders want. So, thinking positively (and long-term) when could rates come down?
• They say teamwork makes the dream work. But it's now clearer than ever that the platitude applies to the Australian dream of homeownership, too.

Savings Moves

In light of the RBA decision this week, Mozo released new research showing how small businesses can capitalise on current savings rates despite the RBA holding the cash rate at 4.35%. According to Mozo's analysis, the 13 RBA rate hikes since May 2022 have significantly impacted personal savers, but business savers have not seen the same benefits.

"The average business at call savings rate in the Mozo database is a dismal 1.99% per annum, compared to the personal savings rate average of 3.48% per annum,” explained Wastell.

“When looking at the trajectory of average savings rates since the RBA’s hiking cycle began, the majority of the RBA’s 13 rate hikes have been passed onto personal savings rates, not business savings rates.”

Since the first RBA rate hike, the average business savings rate has only increased by 187 basis points, whereas personal savings rate averages have grown by 306 basis points.

"Business savers have missed out on 72 basis points of the rate hikes that personal savers received in 2022, 27 basis points in 2023, and 1 basis point in 2024, leaving business savers at a disadvantage when it comes to opting for the average savings account rate."

“However, despite the lower average rates, business savers actually have an opportunity to earn greater potential gains.”

When reviewing the average rates versus the leading rates on offer in the Mozo database, Mozo found that business savers could earn 2.66 percent more in interest by switching to the rate leader, while personal savings account holders who switch could only earn 1.77 percent more.

On a $20,000 balance, that equates to hundreds of dollars more in potential interest for business savings account switchers.

Potential Savings Gains

“Business savers who switch to the rate leader have the potential to earn $548 in annual interest, $179 more than personal savings account holders who switch with the same amount ($369).”

“It just goes to show, even though business savings rates are typically lower on average, the benefit of opting for a competitive rate in this high rate environment can really bump up the return on investment for savvy business switchers.”

Top Business Savings Accounts

Savings Insights

• 13 rate hikes have translated into higher average rates for personal savers, but business savers who switch could earn $100s more in annual interest.
• If you have just $2,000 to deposit into a savings account, which bank offers a higher interest rate? Here’s what you need to know.
• The Albanese government has announced new measures to help Australians get better rates on savings accounts, but what are they?

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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