Confused as to why the interest rate rise imposed by the Reserve Bank is not reflected in the rate of return on your bank savings account, yet when the rate falls, it is passed on immediately?
You're not alone. It would appear to even confuse the federal Treasurer Jim Chalmers who has ordered the Australian Competition and Consumer Commission to investigate how banks set interest rates for savers.
In most cases banks have fully passed through the cash rate target increases to their home loan interest rates. However, the increases in interest rates on deposit products appear to have typically been smaller and less consistent.
According to the ACCC, in many cases, banks have only applied increases in the cash rate to some deposit products, often with conditions attached.
Little reserves
It's an old bugbear which is particularly galling to retirees living wholly or partly on savings held by the banks.
Many older Australians have little reserves in their superannuation accounts if any, and many find their loyalty to a bank they may have been with for 50 or 60 years sadly misplaced and certainly not reciprocated.
However, many retirees stick with the bricks and mortar banks, particularly the big four and are reluctant, understandably driven by fear of change or of the need to employ new technology, to try some of the new options, particularly the online banks which are offering better returns on savings accounts - albeit, in some cases with conditions.
Australians hold more than $1.3 trillion in savings and deposit accounts but the interest rates vary considerably across banks.
The RBA's 0.25 per cent increase in the official cash rate to 3.6 per cent this week is only the latest rise which has seen borrowers, particularly those with a mortgage struggling to make repayments, while savings account holder scratch their heads and wonder why they're not seeing more of the action.
The official cash rate has climbed from 0.1 per cent to 3.6 per cent in the past 10 months but very few savings account base rates reflect this.
Some of the big banks are offering as little 1.35 per cent standard variable base rate plus bonus rates when you grow your balance - which can be nigh-on impossible for retirees living on a pension and dipping into savings to survive. Term deposits traditionally offer higher rates but tie money up for periods of time.
Fees, terms and conditions can be onerous often negating bonus interest.
ACCC inquiry
The ACCC's inquiry will look at aspects of savings interest rates including the amount deposited or held in a retail account; variations for new and existing customers, terms and conditions; fees and charges including break fees; and consumer behaviour and other factors affecting customers switching to alternative products.
And advocates are advising savers of all ages to shop around when it comes to what to do with their savings.
Many of the smaller boutique and online-only banks are backed by the major banking companies and are offering interest rates well over 4 per cent. Some have no fees, but some have terms and conditions around maximum amounts invested, minimum monthly deposits and number of transaction a month. There are also some strange conditions with one well-known bank offering over 5 per cent to people aged between 14 and 35 years only!
'Money kitchens'
Paul Versteege from Combined Pensioners and Superannuants Association said the ACCC will look at the curious practice of the banks to wait and see what the competition does following a hike in the Reserve Bank's cash rate as well as what deposits are used for by the bank.
The ACCC's report to the Treasurer will offer a fascinating look in the money kitchens of our financial institutions, even if afterwards the banks continue business as usual and put up mortgage rates higher and faster than deposit rates.
- Paul Versteege CPSA
"The bank rents your money and then rents it out for more," he said. "That much is clear, but is it rented out to people who take out a mortgage or is it rented out as an unsecured personal loan to a teenager buying their first car? How much do banks pay for money they don't source from deposits but which they borrow in different ways? Does all this work differently for small banks as compared with big banks?
"The ACCC's report to the Treasurer will offer a fascinating look in the money kitchens of our financial institutions, even if afterwards the banks continue business as usual and put up mortgage rates higher and faster than deposit rates."
Welcoming the inquiry, Association of Independent Retirees president Wayne Strandquist said the anomaly between borrower and deposit rates was one regularly raised by members.
"Banks are obviously delaying passing on these increases to improve their margins," he said.
Advising consumers to shop around, Mr Strandquist said, "it comes down to people being aware that deposit interest earnings are very competitive at the moment. Banks need to pay a competitive rate of interest".
He advised bank customers to do their research and then ask their existing bank to do better and if they were not happy with the reponse, to consider moving.
ACCC chairwoman Gina Cass-Gottlieb also welcomed the inquiry.
"We are aware that deposit and savings accounts are an important source of income for many Australians, typically supplementing their income from employment, superannuation and the pension," she said.
We are aware that deposit and savings accounts are an important source of income for many Australians, typically supplementing their income from employment, superannuation and the pension.
- Gina Cass-Gottlieb, chairwoman of the ACCC
Ms Cass-Gottlieb said the ACCC would consult closely with financial regulators, including the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
The ACCC is expected to release an issues paper in the coming months, and is directed to report to the Treasurer by December 1.
More information here