‘$971k a day’: Big banks’ rate rip-off
The big four are laughing all the way to the bank.
By not passing on yesterday's Reserve Bank interest rate cut in full to borrowers, the nation's biggest lenders are set to earn an additional $354 million over the coming year, according to an analysis by comparison website Mozo.
CommBank and NAB both passed on the full 25 basis point cut last month but will only pass on 19 basis points this month, for a total of 44 basis points out of a possible 50.
Westpac is passing on 20 basis points from each cut for a total of 40, while ANZ will pass on the full 25 basis points this month after only 18 last month, for a total of 43.
ANZ and NAB are passing on this rate cut within the first two weeks - both on July 12 - while Westpac is waiting until July 16 and CommBank until July 23.
The changes will bring the standard variable rate at CommBank to 4.93 per cent, Westpac to 4.98 per cent, NAB to 4.92 per cent and ANZ to 4.93 per cent.
"Christmas has come early for the big banks this year," Mozo spokesman Tom Godfrey said.
"Holding back some of the official rate cut from their customers is the gift that keeps on giving. Collectively, the big four will rake in $354 million a year in additional interest. That's a tidy $971,000 per day."
When added onto the additional interest from withholding part of last month's rate cut, that brings their total haul to an extra $547.6 million per year.
By delaying the date their cuts take effect, Mozo calculates the banks will pocket another $109.1 million in additional interest.
"This comes on top of the $108.8 million they tucked away by delaying their cuts last month," Mr Godfrey said.
Mozo estimates that by holding back some of the official interest rate cuts since 2016, the big four have pocketed approximately $125 million per month in additional revenue - $3.86 billion in total.
By delaying the effective dates of their interest rate cuts the big banks have raked in $221 million since August 2016.
In a report earlier this year, analysts from Macquarie calculated that banks had raked in an eye-watering $18.8 billion between 2008 and 2019 by repricing mortgages out-of-cycle with the RBA.
They warned that in the shadow of the banking royal commission, the common practice of "rewarding new customers at the expense of existing customers" ran the risk of government intervention.
"In recent years, a number of reviews highlighted the need to reduce the 'loyalty tax', and we see an increased risk of this becoming a political issue," they wrote.
Mr Godfrey said for borrowers looking to save on their monthly repayments it "pays to look past the big banks", with smaller online lenders and credit unions offering the best rates.
Queensland-based online lender Reduce Home Loans currently has the lowest variable rate on the market at 2.89 per cent, followed by Homestar Finance on 2.99 per cent and Athena Home Loans on 3.09 per cent.
RateCity research director Sally Tindall said while an extra $100 a month as a result of the two rate cuts "might feel like a win for families, that doesn't necessarily mean they're on a good home loan wicket".
"Rates have dropped to as low as 2.89 per cent which is well below any of the big banks' offerings," Ms Tindall said.
But she noted any cut to the cash rate is always a double-edge sword as savers brace for another round of deposit rate cuts.
"RateCity's average savings rate is 1.51 per cent but this is set to drop below inflation in coming days as this most recent cash rate cut gets passed on," she said.
Athena Home Loans co-founder Nathan Walsh said his firm passed on both full rate cuts to all new and existing customers "within minutes as opposed to as long as 21 days from the major banks".
"It's a big benefit for consumers, that 50 basis points on a typical loan will save roughly $40,000 over the life of the loan, or $51 a fortnight," he said.
"If you keep your payments the same that benefit grows from $39,000 to $62,000 and you shave three years off the life of the loan. Time is money and it's a really big opportunity for families to get ahead."
Mr Walsh said there was a "real frustration" among customers that "banks are raiding the home loan honey pot yet again".
"When you do the numbers, the way rate cuts have been applied is going to cost Australian families well over half a billion dollars," he said.
"Over $100 million because of the delay, then another $450 million for not passing through the full 25 basis points, that's on top of roughly $380 billion back in June. I think people often don't appreciate how big that impact is on Australians."
According to Mr Walsh, more than half of Australian families don't even know the current interest rate they are paying on their mortgage.
"The first thing is just to do your home loan health check, confirm the rate you're on today and go to a mortgage calculator to see what the benefit of the savings would be," he said.
He added that switching lenders today is easier than ever and could often by done completely online.
"I think people are looking back on the experience a few years ago, it used to be a very painful and paper-based process," he said.