Australian banks pass on interest rate hikes to savers, but only with tough rules

The threat of an investigation into how banks set rates for savers has seen many start to pass on increases – sort of.

Savers have experienced tough times in recent years with their money barely gaining a return, and since interest rates have been hiked 10 consecutive times, banks have been heavily criticised for failing to pass on increases with the situation still remaining “complex”.

The big banks have been selective in which savings accounts they hike, and by how much, and while some rates have gone up by more than the Reserve Bank of Australia (RBA) rises, others have hardly moved.

But with the threat of an Australian Competition and Consumer investigation into how banks set interest rates for savers looming, the banks have finally boosted their savings offers.

However, if your cash remains in a standard account, you’re missing out, new analysis has revealed.

Basic savings accounts pay just 2.13 per cent on average up from 0.18 per cent since April last year – falling far behind the official cash rate which has soared to 3.6 per cent since May 2022.

Other offers fare better with the average bonus saving account rising from 0.51 per cent in April last year to 3.24 per cent, yet it is still below the current interest rate.

Promotional savings rates have also climbed from 0.47 per cent and presented the best deal at an average rate of 3.87 per cent – and even surpassing 4 per cent at the big four – but there is a catch.

Canstar's group executive financial services Steve Mickenbecker. Picture: Supplied

Canstar’s group executive of financial services Steve Mickenbecker said the banks have been selective about passing on interest rate increases to savers.

“The way they have done it is by increasing introductory rates more than the base rate on savings accounts, which means that existing savers don’t receive the full benefit of the savings rate increases,” he explained.

“Banks’ wholesale funding costs have risen in a time when they continue to chase attractive home loan refinancing borrowers and are holding down savings account interest rates to balance the books.”

Many of the bonus accounts can require onerous conditions to be met such as depositing a certain amount of money, while also making a set number of transactions a month creating the risk that people won’t attract the bigger rate. This means they could receive as little as 0.5 per cent or less on their deposit.

The other catch is that many of the increases have been directed at products aimed at new customers, leaving existing clients dry.

Once again, new customers are the winners when it comes to rates. Picture: Supplied

Many of the promotional accounts pay an introductory rate for new savers for the first six months – leaving current customers out of the windfall.

With savings of $25,000 an interest rate of 4 per cent would return $1000 annually, compared to just $60 for a rate of 0.25 per cent just a year ago.

Since May 2022, the stingiest banks in terms of passing on rate increases have been Westpac and ANZ — prior to this month’s rate rise with existing customers with online saver accounts only saw 80 basis-point increases, from 0.05 per cent to 0.85 per cent.

Bonus saver accounts at the big four have all largely tracked the RBA on the road to 4 per cent, except for ANZ’s Progress Saver, which went from 0.15 per cent to just 3.5 per cent.

The country’s biggest banks have been called out for posting enormous profits by increasing interest rates on home loans at a much quicker pace than on deposits.

The banks haven’t been quick to pass on interest rate rises to savers. Picture: Getty Images

Mr Mickenbecker said in recent years, the way to get a better return on savings accounts is by moving money between banks to take advantage of introductory rates or qualifying for bonus interest every month.

“The savings game has become complex with savers needing to actively manage their money to achieve reasonable rates,” he added.

A spokesperson for the Australian Banking Association said a range of considerations are taken into account for savings rates including customer requirements such as the number of transactions needed and funds being accessible immediately.