The recent rise in interest rates has raised questions whether banks will pass on higher rates to household savings accounts, instead of just lifting rates on home loans.

The reluctance of banks to introduce higher rates for savings accounts has stirred some concern from the Council of Financial Regulators who are keeping a close watch on the matter.

The Council is also keeping a keen eye on how consumers are affected by higher mortgage repayments due to rising interest costs. This has been exacerbated by lower borrowing capacity and a slowdown in the housing market in major cities.

The majority of banks have passed on this month’s 0.5 percentage points increase to mortgage customers in full after also fully passing on last month’s 0.2 percentage points rise.

Changes in savings rates for at-call accounts – accounts where cash can be withdrawn at any time – have so far been patchy, even though rates for some term deposits have increased significantly.

The Big Four banks led by Commonwealth Bank has lifted bonus rates on a key savings account and a youth savings produce by 0.5 percentage points.

National Australia Bank increased its base rate on its online saver by 0.25 percentage points to 0.3 per cent, bringing it in line with CBA for a similar type of product.

NAB also lifted an introductory rates, open to only new customers, by 0.5 percentage points.

Both ANZ and Westpac have yet to move on savings account rates although Westpac is expected to make an announcement on deposit rates this Friday.

At its quarterly meeting this week, the Council said: “Given the cash rate remains at a low level, there has been much less pass-through to deposit interest rates than to lending interest rates so far. It was agreed to continue to monitor pass-through closely.”

The Council is made up of the country’s main financial regulators including the Reserve Bank, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Federal Treasury.

While some banks have increased term deposit rates more sharply which would help retiree savers, the lack of movement in at-call savings accounts is a reflection that banks are sitting on large deposit balances. This means there is less pressure to compete for funds.

Steve Mickenbecker, group executive for financial services at Canstar observed that interest rate rises for deposits have been “patchy” with some banks moving only on bonus or introductory rates rather than the base rates that all customers receive.

“They are not having to work very hard on the deposit front at the moment because they amassed these huge deposits back during COVID,” Mr Mickenbecker told the Sydney Morning Herald.

However, he expects banks to compete more aggressively to attract deposits in six to 12 months time, as wholesale funding costs increased.


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