Big banks routinely ignored RBA cash rate to protect profits in 2016

By Roisin Kelly-Goldsmith ·

If you ever doubted the effectiveness of the RBA’s official cash rate, the findings on this page should come as no surprise. Here at Mozo, we’ve kept a close eye on the interest rate movements of the big banks over the last 12 months, to see how much they are distancing themselves from the Reserve Bank’s interest rate standards.

And the results of our analysis revealed the gap between the official cash rate and the rates offered by the major banks grew in all banking categories, except one.

Here’s a runthrough of the margin increases applied by the big banks over 2016:

Home loans

Remember when the RBA sliced 25 basis points off the cash rate last August? Back then, we revealed just how much the big four banks were pocketing daily for failing to pass on the full rate cut suggested by the Reserve Bank.

Despite a stable cash rate ever since, home loan interest rates have continued to rise. By the time Aussies waved goodbye to 2016, major bank margins on $300k mortgages had grown 10bp higher than the official RBA cash rate cuts.

According to Mozo’s Product Data Manager, Peter Marshall, homeowners should prepare for a more expensive mortgage climate.

“The outlook for 2017 is pretty bleak when it comes to home loans, as we expect the big banks will take every opportunity they can get to increase their margins further over the cash rate so long as they are reporting that their profits are being squeezed,” he said.

Credit cards and personal loans

Aussie consumers with big four bank plastic in their wallets took the biggest margin increase hit, with the average credit card interest rate now a considerable 17.38% higher than the official cash rate. When it came to unsecured personal loans, Mozo’s data crunching found that big bank margins grew by 64 basis points.

Savings accounts and term deposits

Major banks trimmed savings account interest rates 10bp more than they needed to in 2016, according to Mozo data. On the plus side, term deposit rates increased to seduce savers looking for a cash lock option.

“Term deposits provided the only glimmer of hope for consumers last year with the big four banks enticing customers to lock away their cash with higher interest rates, while at-call savings rates were slashed by more than the cash rate cuts,” Marshall explained.

“While we expect banks to keep trying to make term deposits attractive, we may have seen the peak with TD rates starting to drop.”

This stance follows on from the first week of January, where we saw ING and four other providers cutting term deposit rates by up to 0.85%, all despite a stable cash rate at 1.5%.

The next RBA board meeting is scheduled for February 7. Stay tuned on their cash rate decision via our dedicated page.