Banks profit from rate cut delay

Just when you thought banks couldn’t get any greedier they, well, get greedier. You won’t believe how much money they will pocket by withholding lower rates from their customers.

It’s not the first time and it certainly won’t be the last.

According to data supplied by www.finder.com, banks stand to make a combined $21 million simply through delaying the passing on of the Reserve Bank of Australia’s (RBA) rate cuts that were announced on Tuesday 3 May.

By withholding the lower rates from customers, banks can make a combined $1.25 million each day. So, they’ve already profited from the two days it has taken them to announce that they will pass on the cuts. Then there’s the period between when they say they’ll pass on the cuts and when the lower rates actually take effect.

For example, Westpac has announced that it will pass on the full .25 per cent cut from 23 May – that’ll net them over $8 million in interest on repayments over the next fortnight. NAB will also lower its rate by .25 per cent, which will kick in on 16 May – but the delay will pull in around $3 million. Commonwealth Bank (CBA) will also pass on the full reduction on 20 May and will reel in about $7.7 million for this 17-day delay.


The only bank of ‘the big four’ that isn’t passing on the full rate reduction is ANZ, but at least it’s rolling out its .19 per cent reduction on 13 May, but still, it will have collected an extra $2 million in profits by that time.

The big four banks combined have 750,000 home loan customers, all of whom will miss out on an average of $26 each day the banks delay passing on the lower interest rate. It’s no surprise then that many Australians are more than peeved and are accusing the banks of profiteering.

Once the lower rates are passed on, repayments on a mortgage of $300,000 would be $535.56 less each year; a mortgage of $500,000 would cost $892.56 less; repayments on a $750,000 mortgage would be $1,338.84 less and those on a $1 million loan would be $1785.12 less per year.

Interestingly, if interest rates go up, banks waste no time in passing those increases on to the customer. Makes one wonder why there isn’t some kind of anti-corruption watchdog that can monitor instances such as these. Maybe someone should look into that

In the meantime, for retirees who will lose income due to the RBA rate cuts, finding a better deal on outstanding home loans may help to partially compensate for such income losses. RateCity Money Editor Sally Tindall says there’s currently some very good rates on offer from lenders around Australia. Currently, the big four banks home loan rates are between 5.35 per cent and 5.43 per cent.

“Regardless of whether your bank cuts rates or not, it’s also worth seeing what other lenders are offering, because ultimately the lower the comparison rate, the more money you’ll have left in your pocket,” said Ms Tindall. “There are plenty of lenders already offering rates below 4 per cent for owner-occupiers, so if you’re on a rate above 4.5 per cent, the chances are you’ll still be behind, even if you do get a cut.”

So, if you’re trying to discharge your mortgage before you retire, or if you’re still paying off a mortgage in retirement, it may be well worthwhile checking out the deals on offer from other lenders. After all, every cent counts, and the sooner you’re in the black the sooner you can kick back.

Related articles:
RBA tipped to cut interest rates
Rate cut not good news for retirees
Banks need to change culture

Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.
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