Major banks face savings battle as smaller rivals lift deposit rates

The big banks are facing increasing pressure to boost their deposit and savings rates as smaller rivals seek to disrupt the market with competitive offers. See the best savings rates out there.

The major banks confront heightened competitive pressure over the next eight months to boost deposit and savings rates, as rivals including Macquarie Bank and ING fight harder to win share.

As official rates have jumped by 2.5 percentage points this year to 2.6 per cent, the big banks are capitalising on the moves given they pass on rises to mortgage customers but hold a lot back from deposit customers.

That lifts the net interest margin they earn from loans and improves profitability.

But players such as Macquarie are seeking to disrupt the deposits market with a savings account that gives full access to funds paying 4 per cent for four months, before reverting to 3.2 per cent.

The latter rate becomes effective next week for existing customers.

As official rates have climbed the big banks are capitalising on the moves given they pass on hikes to mortgage customers but hold quite a lot back from depositers and savers. Picture: Brent Lewin/Bloomberg

The Australian can also reveal that ING – which shook up the ­deposit market in the early 2000s – will on Thursday announce a lift in its marquee savings maximiser ­account by 45 basis points to pay 4.05 per cent. It has monthly stipulations around making five card transactions and at least $1000 going into the account.

Ethical Partners Funds Management investment director Nathan Parkin said Google data pointed to a large spike in customers searching offers on deposit and savings rates in recent months.

“Generally the gap between the cash rate and the at-call deposit rate is about the widest it’s been in history,” Mr Parkin said.

“We have questioned all the banks on this phenomenon … because it’s (Macquarie) taking so much share, does that have the ability to impact what the majors might pay at some point for their term deposits from three months to two years or three years and at call (deposits)? The pretty consistent answer is yes it does, at some point, but we’re not there yet.”

Mr Parkin expects that banks, which are still sitting on bumper levels of low-interest-paying deposits from the stockpiling during the pandemic, will drag their heels on becoming more competitive on deposit and savings rates. But he said most analysts were pointing to further rate competition around the middle of next year.

“Consensus would say mid-2023, but our view would be that the better margins are probably more persistent in that banks will be slow to raise the deposit rates to the point where it competes it all away,” Mr Parkin said.

“Once the rate rises start to taper, which looks like they are now, you might get more people moving their money.”

The debate on savings and mortgage rates follows a smaller-than-expected 25-basis-point interest rate rise by the Reserve Bank on Tuesday that sparked a major reassessment of prospects for domestic rates.

By Wednesday night, seven lenders – including the big four banks, Macquarie, Suncorp and MyState – had announced variable home loan rates would rise by 25bps to match the RBA.

Bank shares rallied strongly again on Wednesday, with Westpac’s stock leading the gains, rising 3.4 per cent to $22.15.

Amid rising competition for deposits, MyState Bank bumped up the potential rate it will pay on its bonus saver by 40bps, but that came as Canstar urged customers to be mindful of conditions and where rates reverted to.

“The risk with chasing great bonus savings rates to achieve the higher rate on offer, you often have to move your salary account to be able to meet the conditions,” said Effie Zahos, Canstar’s editor and money expert.

“You’re lured to be locked in with them and if you don’t play by their conditions you are settling for their lower base rate … Before making a switch, always consider the bonus conditions attached to any top rate offer and decide if you can comfortably meet the conditions each month.”

Ms Zahos also said those seeking offers in deposit, savings and term deposit markets should be aware that inflation is running at an annual rate above 6 per cent.

“Inflation is still well above what the top-paying saving accounts are offering, so homeowners would be best to consider stashing their savings into offset or redraw facilities,” she said.

ING made a splash in Australia’s deposit market in 1999 with its flagship savings product at a rate of 4.25 per cent, and three years later had captured almost 2 per cent market share. before the Global Financial Crisis the account was paying more than 6 per cent.

Macquarie – which is seeing growth across transaction accounts, term deposits and other products – seems to be using a similar play book.

JPMorgan’s analysis of Australian Prudential Regulation Authority data had Macquarie’s deposits, across households and businesses, increasing at a three-month annualised rate of 43 per cent. That was surpassed only by newcomer Judo and compared to an average three-month annualised rate for the four majors of 11.4 per cent. ANZ and National Australia Bank are using their challenger and online brands – Plus and ubank, respectively – to compete on price in the deposit market.

Macquarie has 4.4 per cent deposit market share.

However, the JPMorgan analysts noted that, while smaller banks were taking “modest share” in the home loan market, their growth rates were slowing.

“Macquarie’s home loan growth slowed to 22 per cent, Bank of Queensland’s home (at 2 per cent) and business (at 8 per cent) loan growth were both below system, as was Bendigo and Adelaide Bank’s,” they said. “Bendigo’s home loan balances were slightly up in August, while BoQ’s were slightly down. Suncorp’s mortgage growth was greater than two times system, while HSBC and ING’s growth was negative.”

On Macquarie, Mr Parkin said: “In order to grow the (mortgage) book, which is also very accretive to earnings and returns, they are having to go and price more sharply (in deposits) than others.”

While the RBA undershot market expectations on Tuesday, a day later the Reserve Bank of New Zealand increased its cash rate to 3.5 per cent, from 3 per cent, citing high inflation and labour shortages.