Banks deny fair returns to struggling savers
AAP
The banks are bleeding term depositors dry despite a golden twelve months of profit.
On Tuesday, the Reserve Bank rescued savers from further losses by keeping the official cash rate on hold.
The problem is the big banks have already slashed fixed deposits by up to three times the February rate cut of 0.25 per cent, despite the financial sector generating almost $40 billion last year.
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Most banks have reduced term deposit rates by more than the February official rate cut so far this year, financial products research house Mozo has found.
“This year has become an absolutely miserable one for savers,” Mozo director Kirsty Lamont said.
The lowering of the cash rate and an absence of competition between the banks has “hammered” savers, leaving them few options for improving returns, Ms Lamont said.
“Term deposits have taken most of the hits because the banks have been pricing in official rate falls and are continuing to do so,” she said.
The era of honeymoon deposit rates ‘is over’
Some banks have slashed rates by as much as 0.75 per cent since January. Photo: Shutterstock
Less than a year ago, depositors could earn between 3.75 per cent and 4.50 per cent on a 12 month term.
Today, they can raise no better than 2.7 per cent from the four major banks.
Several banks – Westpac and Bankwest – have hammered their rate offers by as much as 0.75 per cent since January 1.
These moves are three times the value of the RBA’s official rate cut in February.
Clearly, the banks are trying to pre-empt official rate cuts by denying equitable returns to savers.
With lending volumes still climbing, the major banks are set to boost their profit margins in 2015.
If economists and other rate pundits are right, the Reserve Bank will cut rates again either in May or June.
When that happens depositors will be forced to confront the ugly prospect of their savings not keeping pace with inflation.
Another official rate cut will likely push six month term deposits under 2 per cent.
The national inflation rate is currently running at 1.7 per cent.
Ms Lamont said the options for depositors were limited in the near term.
“The era of honeymoon deposit rates has ended,” she said.
“If you can tolerate extra risk then investing in the sharemarket is an option.”
Deposit growth slowing
Consumers may be choosing sales over savings, data suggests. Photo: AAP
Sliding returns on deposit accounts is already having an impact on consumer behaviour.
While Australians fattened their savings accounts by a record $61 billion in 2014, most of us are now doing other things with our spare cash.
According to data published by the Australian Prudential Regulation Authority, households added only $6 billion to their bank accounts in January and February.
If the trend continues, Australians are likely to add about $40 billion to their balances this year.
The latest consumer spending data published by the Australian Bureau of Statistics indicate that households splurged on whitegoods in February.
They also pumped cash into the sharemarket in the hope of garnering tax-free dividends.
However, according to Ms Lamont, most households are taking advantage of the low interest environment to repay home loans and credit cards.