Retirees hit hard as banks slash interest rates on term deposits

Banks are quietly cutting rates on term deposits and savings accounts, pushing the rate paid further below inflation.

More than 30 Australian lenders have slashed the interest paid on term deposit rates

Australian banks are quietly cutting interest rates on term deposits and savings accounts — in some cases far deeper than the latest reduction to the Reserve Bank cash rate — pushing the rate paid to retirees and savers further below inflation.

After squeezing home loan customers by holding back the full RBA rate cut last week, arguing they were balancing the needs of customers in an low interest rate environment, more than 30 Australian lenders have slashed the interest paid on term deposit rates, and in many cases far deeper than the central bank’s cash rate reduction.

The figures highlight how banks are pulling every lever as they try to preserve profit margins in an ultra-low interest rate world. Banks need to continue to attract deposits, but this becomes tougher as the cost of money moves steadily closer to zero.

According to data obtained from rate comparison website ­RateCity, the cuts to term deposits range between 1 and 35 basis points since Tuesday last week compared to the 25-basis-point reductions to the cash rate made by the central bank.

Interest rates paid on everyday savings accounts have been pummelled far deeper, up to 60 basis points, and at an average cut of 21 basis points across the 30 lenders to cut rates since the start of the month.

Interest rates on term deposits have sunk to their lowest levels since the 1950s, and well over a quarter of all term deposits are now paying negative returns to customers after factoring in the inflation rate.

“A third of our members have got their money in term deposits,” National Seniors Australia chief advocate Ian Henschke said.

“Low rates a real problem and we have to have a hard look at what’s going on,” he said. “And a huge problem is the government has not lowered the deeming rate again. They are accusing the banks of profiteering, but the government is profiteering off the backs of pensioners because they haven’t lowered the deeming rate,” Mr Henschke said.

While Commonwealth Bank was first to announce rate reductions for borrowers last week, it was also the first bank to slice interest paid on savings accounts. While mortgage customers got just a 13-basis-point cut to standard variable rates, customers with GoalSaver accounts were hit by a 25-basis-point cut to interest rates. However, Netbank Saver customers were given some relief with just a 5-basis-point interest rate reduction.

When announcing the mortgage rate reductions, CBA retail boss Angus Sullivan said the lender had “carefully considered how to best meet the needs of over six million savings customers”.

The RBA highlighted last Friday in its financial stability review that major banks had “ample access” to funding sources at a lower cost than a year ago, and faced less profit pressure from falling deposit rates than banks in other countries.

“Spreads on long-term wholesale funding have declined to around their lowest level since before the global financial crisis, while spreads on short-term wholesale funding have fully unwound last year’s increase, to be around their lowest level in several years,” the RBA said.

ANZ passed on just 14 basis points of the RBA rate cut to standard variable home loan borrowers. However, the bank will cut term deposit rates on its Premium Cash Management accounts by the full 25 basis points for balances above $500,000, to 0.75 per cent a year. Balances between $10,000 and $500,000 will receive 5 basis points less interest, with rates reduced to 0.1 per cent per annum.

Explaining why ANZ wasn’t passing on the full rate cut to borrowers, group executive Mark Hand said the bank had made “a considered decision balancing the needs of our customers in a low- rate environment as well as the performance of our business and our role in stimulating the economy”.

National Australia Bank will on Friday cut 25 basis points off its interest accounts for savings accounts. Deposits above $1m will attract 1.25 per cent while those below $1m will receive 0.75 per cent. NAB lowered its standard variable rates by 15 basis points.

“We are aware of the growing impact reductions in interest rates have on our 3 million savings and investment customers and will continue to offer competitive interest rates on savings and term deposits,” said NAB chief customer officer Mike Baird, as he explained the decision to withhold some of the RBA’s rate reduction.

Suncorp will cut its term deposits rate from 1.75 to 1.50 per cent for savings above more than $100,000. For deposits with between $10,000 and $100,000, rates will be cut 15 basis points to 0.45 per cent.

AMP Bank will lower its SuperEdge Pension Account by 25 basis points to 0.75 per cent, despite only passing on home loan borrowers 15 basis points of the RBA rate reduction

Bendigo Bank will also cut rate for Easy Retirement accounts by 25 basis points for all balances above $10,000. It passed on just 15 basis points of the RBA cut to borrowers.