While increasing interest rates hurt mortgage holders, a rate rise isn't bad news for everyone.
Retirees and savers are set to benefit, with the RBA’s first 25-basis-point hike yesterday likely to be the first of many as the central bank looks to get the official cash rate back to around 3 per cent.
So far, of the major banks, Westpac and NAB have passed on the rate hike to savings customers.
However, only some of their savings accounts increased by 0.25 percentage points.
Savings.com.au has broken down how much people can earn by parking their money in a savings account.
Under a scenario where a bank passes on the full 25 basis points to its 1 per cent p.a. savings account, raising it to 1.25 per cent p.a, this is how much you’d make (assuming interest compounds monthly):
$5,000 = $50 to $63 (+$13)
$10,000 = $100 to $126 (+$26)
$50,000 = $500 to $629 (+$129)
$100,000 = $1,000 to $1,257 (+$257)
“For a saver with $5,000 in that bank, they’d go from earning $50 a year in interest to $63 a year,” Savings.com.au editor Dominic Beattie said.
“Doesn’t sound like much does it? But with $100,000 in the bank it could mean an extra $257 in interest,” Beattie said.
While there is an expectation banks will start lifting deposit rates, banks have little incentive to encourage more saving.
That’s because Australians already have a lot in savings.
The latest statistics for March from the Australian Prudential Regulation Authority showed Australian households had a total of $1.26 trillion in the bank – an increase of $272.4 billion since COVID began.
Essentially, what this means is banks have more deposits than they can find a home for, so it’s in their interests to keep their interest rates low to encourage savers to go elsewhere.
“Banks are full to the brim with cash. This will make it a costly exercise to pass these hikes on in full, but that’s what they should do,” RateCity research director Sally Tindall said.
“The irony is the more money we put in the bank ready for a rainy day, the less likely the banks are to offer competitive rates.”
She said savers should shop around to find a better deal if their bank wasn’t going to pass on the rate hikes to savings customers.