Why banks are giving retirees and savers the cold shoulder

Interest rates on deposits have dropped again and the short-term outlook is ‘bleak’.

Why banks can disregard retirees, savers

There’s a war of sorts going on in the financial services sector – and retirees and savers are among the casualties.

As Treasurer Josh Frydenberg confirmed today that we are officially in a recession and the Reserve Bank, as expected, kept the official interest rate on hold at 0.25 per cent, the outlook for retirees is a challenging one.

The banks are in a position of power on savings and term deposit interest rates and there appears to be little prospect of an improvement for several years, according to financial services specialists.

The problem is that bucketloads of money have been dumped into bank coffers – even though the best interest rates on offer are less than 2 per cent.

The Australian Prudential Regulation Authority (APRA) says we plunged more than $15 billion into bank accounts in April, as more than $14 billion in withdrawals were made under the government’s early super access scheme.

“The [banks’] demand for deposits is lessened, so therefore it’s very hard to get a decent rate of return on whatever savings you have,” RateCity.com.au research director Sally Tindall told The New Daily.

She described the short-term outlook for savers as bleak, as the RBA has ruled out hiking rates for “some years”, but urged customers to shop around because “there are still some semi-decent ongoing rates out there which could suit pensioners whose personal finances are structured differently.”

Comparison website Canstar says nine providers have slashed rates on savings accounts, while new home loan customers benefitted from 36 cuts to variable rates in May.

The problem is that banks are more hungry for borrowers than for savers.

Canstar financial services executive Steve Mickenbecker explains that the leading banks have had to respond to competition in the home loan market, with several non-major lenders offering variable rates below any major provider. This forces lenders to cut rates for deposits, he told The New Daily.

“Three of the four major banks have lost [home loan] market share over the last 12 months, and they absolutely would want to claw it back,” he says.

“The banks make money by lending and they fund their lending with deposits and wholesale funding, so if wholesale rates keep falling (currently 0.16 per cent for 180-day money), they can say the market interest rates have fallen, therefore they can fund part of their book with cheap wholesale money.”

There is some good news however.

Mr Mickenbecker says that banks need to maintain their deposit rates to avoid being downgraded by credit agencies, which may rule out plans for any future cuts.

He also believes that rates across the board may have already bottomed out.

“I don’t see that the banks can actually pass on much in the way of further cuts to home loans or deposit rates,” he said.

In other news that gives cause for optimism, the ANZ-Roy Morgan Australian Consumer Confidence rating rose 6 per cent to 98.3 in the week to 31 May. It found:

  • Now 24 per cent (up 1 percentage point) of Australians say their families are ‘better off’ financially than this time last year and 36 per cent (unchanged) say their families are ‘worse off’ financially.
  • 38 per cent (unchanged) expect their family to be ‘better off’ financially this time next year compared to 17 per cent (unchanged) that expect to be ‘worse off’ financially.
  • Just 10 per cent (up 4ppts) expect ‘good times’ for the Australian economy over the next 12 months while 42 per cent (down 6ppts) expect ‘bad times’.
  • In the longer term, 24 per cent (up 4ppts) of Australians are expecting ‘good times’ for the economy over the next five years compared to 17 per cent (down 3ppts) expecting ‘bad times’.

ANZ head of Australian economics David Plank says: “On the back of strong gains in the ‘economic conditions’ subindices, confidence strengthened further last week. Nine weekly gains in a row is unprecedented.

“To be fair, though, so was the depth of the starting point.

“More good news about control of the pandemic and the consequent relaxation of restrictions is key to the lift in sentiment. Expectations of residential housing stimulus and lower petrol prices may also be playing a role. Though lower petrol prices are also contributing to the record low in inflation expectations.”

Reserve Bank governor Philip Lowe also gave a cautiously positive outlook.

“It is possible the depth of the downturn will be less than earlier expected,” he said in a statement. “The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely.

“There are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending.”

Mr Frydenberg was of a similar mind, saying that despite the grim outlook, Australia was on track for a stronger recovery than other OECD nations.

“The fact that the Australian economy only contracted by 0.3 per cent shows the Australian economy’s remarkable resilience,” he said.

“Indeed, Australia’s performance in the March quarter compares very well to that seen in other nations, with negative growth of 9.8 per cent in China, 5.3 per cent in France, 2.2 per cent in Germany, 2 per cent in the United Kingdom, and 1.3 per cent in the United States.”

Have you settled in for the long haul? Have you revised your retirement plans?

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    COMMENTS

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    Lookfar
    3rd Jun 2020
    4:14pm
    Maybe find someone with a new and needed product, - not already made in Oz (not much chance of that) and prepared to offer you some written in stone equity and invest in that, (with due diligence).
    Horace Cope
    3rd Jun 2020
    4:18pm
    "Have you settled in for the long haul? Have you revised your retirement plans?"

    We really have no choice but to settle in for the long haul and we have not revised our retirement plans. To step away from the questions, I can't see why the way banks have calculated interest rates and possible reasons why rates for investors are so low has much to do with the average person. Since Keating deregulated the banks, they have had to compete against not only the other Australian banks but those banks and financial institutions that were allowed to set up shop in Australia. Governments no longer control any banks unlike pre-deregulation where there was the Commonwealth owned by the federal government and each state had its own bank. There is an open market in which banks compete and, just like any business in Australia, the market dictates what they pay for stock and what the mark-up is to sell that stock. We can whinge and moan all we like but there isn't anything that we or the government can do under existing legislation.
    Lookfar
    3rd Jun 2020
    5:05pm
    Fine Horace, but now the govt is belatedly changing it's attitude to an Australian made economy, - perhaps you may argue that the horse has long bolted, but there are now regulations coming in the states requiring a 25%, later to rise to 30% content of Australian made items in their purchases, - this is wonderful news for the future of Australia, especially our neglected youth, and the immediate stimulation of our economy.
    There are imported goods that would be more economic if locally assembled, - as in my comment on no electic powered pumps made in Australia, - the making of the windings has been lost but the windings are a small part of the pump, - the outside, - the case and electrical cover and the plumbng fittings can all be made locally and the pumps assembled in OZ, then gradually expertise on making the windings gathered, - many currently retired may be able to help in such endeavours, possibly crucially.
    I don't criticise you on this occasion for your negativity, but ask for positivity, - let's us oldies see what we can do to help our young fellow Australians, - after all they endured the Lock-Down for us oldies, - we, the most vulnerable to the Covid-19, and likely to continue to be so, and they basically immune but no money just so we didn't die.
    Lets give back freely to the future of Australia and not worry about minicule percentage points.

    You can't take your money with you, so why not put it somewhere it will do the most good?
    Horace Cope
    3rd Jun 2020
    5:12pm
    Pass the bottle, Lookfar. What has this article to do with what you have posted?

    3rd Jun 2020
    4:49pm
    Love this market as I can use so many of my strategies to make money.
    Lookfar
    3rd Jun 2020
    5:08pm
    Can't you change your strategies to help your - fellow Australians also, - who after all allow you to survive? - Retiring Well?
    Lookfar
    3rd Jun 2020
    7:20pm
    Horace, so you use insults to pretend you know what you are saying, - 'pass the bottle' so you are so clever you support the Govt and then how about this- exactly what I have been arguing for but the Govt snoozes, - like you.. https://www.eco-business.com/news/cable-route-surveys-to-begin-for-australia-singapore-solar-sharing-project/?utm_medium=email&utm_campaign=3%20June%202020%20newsletter&utm_content=3%20June%202020%20newsletter+Version+B+CID_b26d155e8aea721d7c561ba48f405bd8&utm_source=Campaign%20Monitor&utm_term=Cable%20route%20surveys%20to%20begin%20for%20Australia-Singapore%20solar%20sharing%20project
    Youngagain
    4th Jun 2020
    2:11pm
    Horace Cope is right. None of this has anything to do with large deposits in banks driving interest rates down. And this is not a political debate. It's about interest rates, which have risen and fallen under both Governments.
    Youngagain
    4th Jun 2020
    2:06pm
    I'm afraid I find it confusing that the article claims the banks have boat loads of money in deposits and are hungry for borrowers, when we are being told continually that Australians have way too much household and corporate debt? How can we have too much money in savings if everyone owes way too much? Can anyone clarify?
    Lookfar
    4th Jun 2020
    3:01pm
    yes Youngagain, Horace is wrong, he is holding to the times that have gone and also to the indifference to one's fellow human that it engenders, neither is appropriate anymore although he, - no doubt like many, hope those old times will re-instate. That is unlikely, but even if it happens the problems will not be solved so will get worse. -
    Better to try and think about the problems and how to solve them in a sustainable way.

    It is not sustainable that many have no money, - ie have borrowed, and others have much money, and want to make it worth more money without working, - ie just on the dead money sitting there.

    Money is the blood of the economy, if it stops moving the economy will die, so banks have made it move by stealing from their customers, the which option is being closed now by all the investigations, and the banks are afraid to risk money in high risk investments as they will now be held accountable.
    Basically society is changing, money is needed to develop renewables for example, the current govt gives no encouragement for that so such investments become high risk yet the Govt wants investment in Fossil Fuel, despite Fossil fuel companies failing bigtime in America, -and likely here as well, so an unwinnable conflict arises, the old money, represented by the fossil fuel companies, needs to die as they need to die, but the govt is in the thrall of the old money so won't let renewables get much investment. - This i think describes the impasse you complain of.

    Now the govt has learned it can make New Money, so theoretically the economy could become vigorous and our whole society could become vigorous, - with education reviving, industry reviving, and whole new technologies solving our problems, giving our youth a future, saving our planet, on and on, - all good, - win win.

    But, the old money won't let go, even though it is really worth nothing, so the new money can't come, - the old money wants to have the new money without doing anything different, - which is illogical, stupid and incorrect.

    If you stand back and look at this situation you will see opportunities to use your old money to help New money, and as all the money is currently regarded as the same, you will get away with that and your money will work hard re-invigorating the future so will be, ipso facto, New money.

    Of course the old money will try to take that option away from you by insisting that all money is the same so the actual possibility of creating new money and the human race evolving will diminish as the old money finally dies and our society with it.

    I admit it takes a certain flexibility in thinking to understand these ideas, however that is what we have to do.

    Cheers, Lookfar
    Youngagain
    4th Jun 2020
    9:38pm
    Your waffle makes little sense, Lookfar, and doesn't answer my question at all. But what is very clear to anyone with a brain is that we can't keep GIVING money to people who don't earn it and taking from those who do. The real problem isn't 'old money' vs 'new money'. It's the attitude many have that somehow people with money should be robbed to give to those who have less. Now, I have no issue with paying low-paid hard workers more. I have no issue with offering more opportunities for people to work and earn (work for the dole, pay pensioners for community and charity work, etc.), but this nonsense attitude that has developed that handouts much be abundant and based on 'need', so those who work, earn and save should be deprived to give to those who do nothing but whinge and demand will not solve our social or economic problems, but rather will destroy our economy.

    One way old money could re-invigorate the future is by helping people who have saved to leave money to future generations to preserve their wealth so that they can pass it on. If savers could help their grandchildren get a better education, raise a deposit for a home, or live a comfortable life without much government help despite having a disability, that would contribute to future affluence. But no! Those savers must use their hard-won savings for the sole benefit of the taxpayer so bludgers and spendthrifts can get fatter handouts. People who struggle to buy a home and keep it insured are deprived while people who scream for rent assistance or 'social housing' expect the 'old money' to provide for them. Sure, some are genuinely disadvantaged and SHOULD be helped. But the vast majority are more than able to help themselves if they got off their backsides and tried a bit harder. And no - I am not heartless or ignorant. I've been there. Horrendous disadvantage is what drove me to strive and save, so that I could escape hardship. It's achievable, but too many expect someone else to do it for them.

    We had a prosperous society when I was growing up. There was no single parent pension - though there was, rightly, help for genuine widows. There were none of the massive handouts now to people who live immorally and make no effort to help themselves. Workers prospered and bludgers and spendthrifts had to live with the consequences of their lifestyle choices. We need to go back to that. We need to stop punishing hard work and responsible living. We need to get past this stupid wrong idea that anyone who has a healthy retirement fund must have been 'lucky'. We need to redefine 'rich' in more sensible terms. Then, by all means, increase taxes on the genuinely 'rich' and encourage them to contribute more to society, but leave the poor bashed-about lower middle class alone and make people more accountable for their lifestyle choices. That is the best gift we can give the next generation - incentive, the confidence that their endeavours will be rewarded, and the knowledge that welfare payments are going only to those few in GENUINE need through no fault of their own (which is about 1/50th of those who current make that claim!)
    Youngagain
    4th Jun 2020
    9:39pm
    Now, my question had nothing to do with Horace Cope (who was 100% correct, by the way). I asked "How can we have too much money in savings if everyone owes way too much? Can anyone clarify?"
    Farside
    4th Jun 2020
    11:44pm
    See if this makes sense Youngagain.

    Household debt is aggregate of household borrowings and this has been increasing dramatically over past couple of decades to match increased housing prices. Household debt is roughly 190% of household incomes, second highest in the world.In other words too much debt.

    https://www.rba.gov.au/chart-pack/images/household-sector/housing-prices-and-household-debt.svg

    The economy has been sluggish the past few years with low wage growth, less job security and higher unemployment. This discourages consumption spending however borrowers are not directing these savings to reduce household debt. This has been exacerbated with about $150B of household loans paused resulting in further increases to household savings and the supply of money. On the other hand demand for money is falling. Banks are taking less risk on lending, especially after being torch in the royal commission. The world is awash with investment funds however there are not enough quality projects to go around. In other words too much money in savings.
    Farside
    4th Jun 2020
    10:53pm
    The RBA is on solid ground with its advice re future interest rates. Japan has been trying to get out of low inflation low interest rate economy for two decades. Don't expect an increase anytime soon. Time to rethink those retirement strategies.