Fed: Don't expect rate rise reward for saving: banks

AAP General News (Australia)
04-07-2010
Fed: Don't expect rate rise reward for saving: banks

By Stephen Johnson

CANBERRA, April 7 AAP - People who keep their money in savings accounts shouldn't expect
to be rewarded after the latest rate rise, the banking industry says.

The major banks have so far failed to pass on official interest rate increases to customers.

They have even reduced interest payments as the Reserve Bank of Australia (RBA) raised rates.

The Australian Bankers' Association says savings account customers should not expect
their interest levels to rise in tandem with an RBA rate rise.

"Australian mortgages are not funded by savings accounts so the assertion that savings
haven't gone up with the cash rate has very limited bearing," chief executive Steven Munchenberg
told AAP.

"I don't accept the premise that somehow banks are cheating by not passing on."

Savings accounts are less lucrative for banks than term deposits.

"Because of their volatility, they're a less attractive source of funding," he said.

ANZ, NAB, Westpac and the Commonwealth Bank have so far failed to pass on increases
in the cash rate to existing savings accounts with more than $5000 in them.

The average interest has been stuck at 3.9 per cent, even though the RBA raised the
cash rate for a quarter of percentage point in April.

The interest level is actually half a percentage point lower than it was late December,
even though rates have risen twice since then.

Australia Institute senior fellow David Richardson, a former Labor adviser, said the
Rudd government needed to consider re-regulating how banks pay interest on deposit accounts.

That would take Australia back to the 1980s, before the Hawke government embarked on
banking deregulation.

"There's a case for opening up debate on that," Mr Richardson told AAP, adding the
big four banks made $35 billion in profits in 2009.

Three-year term deposit accounts with $10,000 to $25,000 in them have also had little
movement, with average interest stuck at 6.6 per cent.

The rate actually fell from 7 per cent to 6.6 per cent in March, even though the RBA
increased rates by a quarter of a percentage point during that month.

Mr Munchenberg said term deposit interest rates did not fall sharply in late 2008 and
2009 when the RBA cut rates aggressively.

Canstar Cannex financial analyst Peter Arnold said interest on savings accounts was
more closely tied to the RBA cash rate, while interest on term deposit accounts was linked
with money market movements.

He was hopeful the banks would put up interest rates on savings accounts in coming days.

But customers with less than $5000 in the banks aren't likely to be so lucky.

Interest on these accounts with the big banks has been set at zero since December 2001,
Mr Richardson said.

Previously, these accounts paid 0.05 per cent interest.

AAP saj/jl

KEYWORD: BANKS UPDATE

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