Consumer’s Savings Eyed By Big Banks
The big Australian retail banks are engaging in a fierce competition to gain more customers. This is a part of their desire to boost their deposits to finance their funding costs. The central bank has assertedf that due to the global financial crisis, wholesale funding for the global financial markets has been greatly reduced.
Fortunately, the Reserve Bank of Australia has confirmed that many banks have opted to increase their rates for savings accounts and term deposits way above the standard. Only last year, the top four banks have wrestled for gaining the most retail deposits so that they can reduce their dependence on offshore markets funding, which can be very unpredictable.
As a result, a number of term deposit have rates exceeding mortgage rates. This has not happened in the last twenty years. There are “special” deposit rates set by many banks which reached up to 180 basis points, higher than the 3-month bank bill rate. In December 2008, the rate was only at 75 basis points during the height of the global recession.
Savings accounts and term deposits are considered to be a more reliable source of funding, which is why many banks are encouraging customers to save with their offer of high interest rates. With retail deposits, every bank is able to fill about 60 percent of their mortgage books. Some analysts say thet the average rate of term deposits in one year is now equivalent with that of 2008. On that time, the official cash rate was nearly twice as much as the existing rate.
The standard rate for term deposits is 4 percent. Nowadays, it has gone as high as 5.93 percent, which means a 193 basis points distribution. Back in March 2008, the cash rate was at 7.25 percent while the one-year term deposit rate was at 6.6 percent. The banks with the highest one-year term rates are CBA and Westpac, who also have the largest mortgage books. These two big banks reached as high as 6 percent as compared to the 5.87 percent of ANZ and NAB.
Over the past weeks, however, the competition has subsided with banks realizing that the deposits coming in do not really change their market share substantially. Moreover, consumers are caught in a different battle with the big banks in Australia. Consumers believe that the banks are reeking in profits at their expense primarily due to higher rates.
The government further stresses the need to jack up the competition and since election is drawing near, politicians will find ways to get on the consumers’ good side.
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