Friday, March 26, 2010

You want to pay me for taking my money?

Depositors, long second-class citizens at the hands of the banks, are suddenly in demand.

The Reserve Bank has found that place of grudging service, high fees and low rates depositors are now being offered fierce competition, fee rebates and interest rates so high they suggest a profit margin of less than zero.

The Bank's half-yearly Financial Stability Review finds Australia's major banks are now offering deposit rates up to 2 percentage points above the bank bill rate instead of way below it as had been the case up until the financial crisis.

"Banks also appear to be competing for deposits by cutting fees," the Reserve Bank reports. "The
largest have reduced their penalty fees and a few have introduced deposit accounts that reimburse the fee for withdrawing money from some other banks' teller machines."

Rate tracker Cannex says the competition has become so cutthroat that one bank is actually paying customers 50 cents for each withdrawal they make through eftpos at supermarket checkouts...

"ING Direct doesn't have an ATM network so it reimburses customers the fee for using other bank's ATMs and gives them a 50 cent bonus if they withdraw from a supermarket because that costs it less," says Cannex analyst Peter Arnold.

"The official cash rate is 4 per cent yet the Commonwealth and Westpac are offering 6 per cent for one year deposits and UBank is offering 5.85 per cent at call."

"The banks have changed but not all their customers. Many are so used to getting next to nothing for deposits they haven't bothered to look around."

The Reserve Bank says the banks are competing hard for deposits because previously cheap foreign funds are no longer available. And while early in the crisis bank deposits swelled 25 per cent as customers sought safety that growth has since slowed forcing banks to work hard.

Non-bank lenders are paying 1.40 percentage points above the bank bill rate for their funds instead of 0.15 points before the crisis. As the crisis peaked they were paying 3.80 points above bank bill rates.

The Bank says we are taking out our credit cards again with both transactions and ourstanding balances picking up while still saving, typically putting away 4 per cent of our income compared with nothing before the crisis.

It believes our home borrowing is extraordinary safe with only 2 per cent of mortgage holders meeting the traditional definition of "stress" - payments of more than half of their after-tax income and a loan-to-valuation ratio of 90 per cent or greater. Nationwide just 27,000 are behind three months or more with most mortgage holders actually ahead on repayments.

Businesses are being treated less well by banks with loans to business sliding at an annualised rate of 10 per cent in the six months to January, although the Bank says it sees signs that sidle is coming to an end.

Published in today's SMH and Age


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4 comments:

carbonsink said...

Suncorp is (was?) paying 0.25% above Big 4 TDs.

Which was a pretty good deal. All you had to do was find the best deal the Big 4 were offering, and Suncorp would give you an extra 0.25% for the same term. I'm getting 6.55% on a short term ATM.

Of course, savings is still a mugs game. The tax man takes half your interest so you need to be getting double inflation to stand still. Property investors OTOH are given all sorts of tax concessions, and if the property market runs into trouble, the Feds will be there to prop it up every time.

The #1 goal of macro economic policy in this country is: Support house prices.

Peter Martin said...

"The tax man takes half your interest"

... not for much longer ...

"Property investors are given all sorts of tax concessions"

... not for much longer ...

If Henry gets his way

carbonsink said...

I'd want to believe, but it won't happen because, I repeat, the #1 goal of macro economic policy in this country is: Support house prices.

Ok, I think there's a chance they might change the tax treatment of interest income (a CGT style concession would be nice) but there's ZERO chance negative gearing etc going. Hasn't Swan ruled it out already?

Oh BTW, my impression is that the best of the term deposit deals were around the end of 2009, and long term TD rates are coming back a bit now. For example, Westpac was offering 8% on a 5 year term during December, which is now down to 7.05%.

Anonymous said...

True Peter, effective marginal tax rate is over 50% - Chart 2: Different Treatment of Savings Types:
http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/speeches/09.htm

Carbonsink, correct. Govt agenda is transparent - protect the status quo at all costs. Most recent solution to prop Aus housing bubble is to use foreign buyers to outbid local ones. Is working well, but natives getting restless.

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