Big four banks lower mortgage interest rates following RBA’s cash rate cut - but delay will earn them $10m a day

Going slow on rate cuts could be good for the major banks as they cash in millions for every day homeowners wait for a mortgage reduction to be passed on.

Australia’s major banks are pocketing $10m a day in total for every day they don’t pass on the Reserve Bank’s interest rate cut, new figures show.

Fresh data by comparison site Finder shows the banks are cashing in while Aussies wait for a rate cut.

“It’s corporate greed, it’s good for them to be slow on passing rate cuts,” Finder’s head of consumer research Graham Cooke told NewsWire.

Mr Cooke said there were social pressures on the banks to pass on the 25 basis points rate cut in full this time around but the delay in a cut is good for bank shareholders.

The first of Australia’s big four banks has moved on interest rates. Picture: Newswire

The major banks raced to move on rates after the RBA announced the official cash rate had been cut from 4.35 to 4.10 per cent on Tuesday.

The Commonwealth Bank, NAB and ANZ will all pass on the rate cut on Friday February 28, 10 days after the RBA decision.

Aussies will see a decrease in their rate in between 10 to 14 days. This is faster than usual, with cuts historically taking 18-22 days to be passed on to consumers.

Zyft consumer finance expert Joel Gibson said banks were under no obligation to pass on interest rate cuts.

“As interest on repayments compound daily, during the lag period between today’s decision and when the rate drop comes into effect, banks interest charges will remain the same,” he said.

“Even after the daily interest rate changes, borrowers may not see the impact on their repayments for another month or more – because many of us pay our home loans monthly in arrears.”

Westpac will be the last of the big four to decrease home loan variable interest rates by 0.25 per cent for new and existing customers, effective 4 March.

“Today’s decision will be welcome news for mortgage customers,” Westpac chief executive, consumer, Jason Yetton said.

“By reducing the standard variable home loan rate by 0.25 per cent per annum, customers will save an extra $90 per month, or $1080 per year, based on a $500,000 home loan with principal and interest repayments.”

NAB and Commonwealth Bank announced they would also pass on the cut in full for customers on a variable rate, with the changes effective on February 28.

“The extended period of high interest rates has placed real strain on household budgets and this rate reduction will help to ease the financial burden,” NAB group executive, personal bank Ana Marinkovic said.

“We wanted to move quickly after the RBA’s decision to provide customers with certainty.”

ANZ will also pass on the 0.25 per cent cut in full for customers on a variable rate, and said it would continue to review other interest and deposit rates.

Savers lose out

While banks have been quick to pass on the rate cut for home loans, they have been just as quick to cut rates on savings accounts.
Westpac announced it would reduce rates for savers using Westpac Life and eSaver accounts by the full 0.25 per cent, but said its products still carried headline interest rates above the cash rate.

“Customers with a Westpac Life account can also receive bonus interest by boosting their balance by just one dollar each month,” Mr Yetton said.

“We’re continuing to alert customers to this through our app, with 85 per cent of balances receiving this rate.”

Commonwealth Bank executive Angus Sullivan said the bank would continue to offer a “range of options”, but not all accounts would be hit by the drop.

“We will maintain our current 10-month term deposit special of 4.60 per cent p.a. for a limited time,” he said.

NAB and ANZ executives said their savings account rates were “under review”.

Big four jump ahead of the RBA’s announcement

With a widely predicted rate cut, some of the major banks got ahead, reducing the rate across a number of fixed interest and variable home loan products.

Ahead of the announcement, on February 3, NAB was the first of the big four to cut its interest rates across all loan terms by 0.25 per cent for all owner-occupier property, with investors getting an even bigger drop of 0.3 per cent.

NAB’s lowest fixed rate is now 5.84 per cent, available for owner-occupiers paying principal and interest with a deposit of at least 20 per cent on a three-year term.

Reserve Bank governor Michele Bullock announced the rate cut of 25 basis points on Tuesday. Picture: NewsWire / Jeremy Piper

Days later, Australia’s second largest lender Westpac cut its short-term fixed mortgage rate for owner occupiers by up to 0.4 per cent and investor fixed loans up to 0.35 per cent.

Following the drop, Canstar said Westpac became the lowest of the big four with rates starting from 5.59 per cent, available for owner-occupiers paying principal and interest with a deposit of at least 30 per cent on a two-year term.

A couple of days later Westpac announced a sweetener for its variable rates.

The big four bank had an offer of a variable rate starting from 6.44 per cent for the first two years before jumping 40 basis points to 6.84 per cent.

But it has now removed the 0.40 per cent increase after two years to make its variable home loan more attractive for homeowners.

AMP also dropped the rates it is offering customers ahead of the Reserve Bank’s next meeting.

Rates for AMP’s one, two, three and five-year fixed terms for both principal and interest and interest-only loans for owner-occupiers and investors have fallen 0.25 per cent.

AMP’s new one-year rate will start at 5.89 per cent, while its three-year fixed rate now comes in at 5.70 per cent.

Mortgage holders aren’t biting

Despite banks becoming more competitive on their fixed rate loans, Aussies are sticking with variable, as they likely expect further rate cuts from the RBA.

Canstar data insights director Sally Tindall said despite fixed loans bringing certainty, Aussies are looking for the variable option.

“CBA’s half-yearly results illustrate just how unpopular fixing is. Only one per cent of new mortgages taken out with the bank in the last quarter of 2024 opted for a fixed rate in dollar terms,” she said.

“After waiting well over a year for cash rate cuts to come, it’s hard to see many borrowers tossing this opportunity in.”

Ms Tindall said further rate relief is likely to come for borrowers as whole funding is falling for the major banks.

“If you are thinking about fixing your rate, consider waiting for them to fall even further and when you do lock in, spend time shopping around for a competitive deal,” she said.

Double edged sword

While the cuts have been good for mortgage holders, they have also flown through on savings rates being offered.

A flurry of banks also took the opportunity to cut interest rates on savings accounts ahead of the RBA’s announcement.

While mortgage holders rejoice, savers are missing out as banks slash deposit rates. Picture: NewsWire / Jeremy Piper

Canstar found 20 banks have cut at least one term deposit rate, including the big four banks.

These include NAB and ANZ have each made cuts of up to 0.20 percentage points on one of the various savings products on offer.

Canstar data insights director Sally Tindall said while an easing cash rate was good for borrowers, it was bad for savers.

“An easing of the cash rate is always a double-edged sword and this recent deluge of term deposit cuts is an unfortunate but timely reminder of this,” she said.

“Australians with money in term deposits could get a shock when their fixed period matures and they’re facing much lower interest rates.

“For those looking to lock up their hard-earned money in another term deposit, time may be of the essence.”

Originally published as Big four banks lower mortgage interest rates following RBA’s cash rate cut - but delay will earn them $10m a day