Having recently announced soaring profits, the big four banks found themselves with little choice but to pass on the full Reserve Bank of Australia (RBA) rate cut, however, they are finding other ways to gouge customers.
With the official cash rate now the lowest since the RBA began setting monetary policy, at 2.75 per cent, it would seem that borrowers are laughing all the way to the bank, but this isn’t the case for those saddled with expensive credit card debt. Despite all interest rates being theoretically linked to the Reserve Bank’s cash rate, banks have been slow, indeed downright reluctant, to pass on any of this reduction to their credit card customers.
Credit card interest amounts to $6.2 billion in revenue annually for the big four and despite a reduction in the official interest rate of two percentage points since November 2011, customers have only seen, on average, 0.12 points of a reduction in credit card interest rates.
It is estimated by the Australian Securities and Investments Commission (ASIC) that, if only the minimum payment is made each month, a credit card balance of $4700 will attract $807 in interest per annum.
Matt Levey, from consumer watchdog Choice said, “It’s basically just [banks] taking advantage of a product that’s poorly understood. While there’s an extensive media spotlight on home loans, it seldom extends to credit cards.” This was countered by chief executive of the Australian Bankers Association, Steven Munchenberg who stated that, “It works both ways. Customers get the benefit when the cash rate is going up, they don’t see that in their interest, and when the cash rate is coming down they don’t see that either.”
Read more at TheAge.com.au
Shareholders of the big four banks must find it difficult to wipe the smiles off their faces, but for bank customers it’s not so funny.
Last week mortgage holders recieved some pre-budget relief with the RBA dropping the official cash rate by 25 basis points, and for once, the big four banks were falling over themselves to announce they would pass on the full rate cut. Big deal. While their customers struggle with mortgage repayments, juggle credit card debt and watch their savings dwindle to nothing, the extreme half-year profits each bank has announced over the last two weeks are simply a proverbial smack in the face.
Bitten by the GFC in 2008, Australians have taken a more conservative view on borrowing money and have spent less and saved more. Such savings include paying off expensive debt and spending less on credit. To maintain their profit margin, the banks have countered this by keeping interest rates on credit cards higher than the cost of actually providing the credit. Not great news for those who are, unfortunately, not in a position to live without the safety net of credit card spending.
Savers have also been hit hard. As those who are living on a fixed income will understand only too well, the news that the RBA has cut interest rates further cuts like a knife, with the knowledge that the already meager income derived from savings will fall, while the cost of living continues to rise. Although most banks offer an initial promotional interest rate, the everyday ongoing interest paid on savings is approximately three per cent, just .25 per cent above the official cash rate. With bank home loan interest rates about two percentage points higher than the official cash rate, there’s plenty of scope for them to manoeuvre and spread the ‘joy’, should they wish to do so.
A further blow is the deeming rate on savings for those who are on an Age Pension from Centrelink. Although the government has recently lowered the deeming rate, it still does not adequately reflect the position of savers, and any further reductions are slow to flow through.
It seems that the old saying ‘never a borrower nor a lender be’ should be revised to ‘never a borrower from the big four banks be’.
Should the banks be more accountable for interest rate moves? Or should the government look to make deeming rates more flexible?