the mozo blog

This is a round-up of rates in December 2011 and some may have changed since the time of writing. To check today’s rates click on the highlighted product.

Home Loans:

The only lender that didn’t pass on the full 25 basis point RBA rate cut in December was RAMS which only passed on a 20 basis point reduction. RAMS has been busy repositioning itself as a full financial services provider with the launch of new deposit accounts late in 2011 (see the Savings Account section of this article for more).

UBank (the online subsidiary of NAB) currently offers the best variable home loan rate as its usual requirement of having the loan for 3 years to receive a loyalty discount of 0.20% continues to be waived. We’re not sure how long this will last, but applicants currently get the discount for the life of the loan with no waiting period meaning the variable rate is just 6.14%, compared with an average standard variable rate across the market of 6.94%. The offer is a little restricted though as their loans are only available to people refinancing and not new loans.

Fixed home loan rates stopped falling in December unlike previous months when we had seen quite large movements. The average 1 and 3 year fixed rate were down about 10 basis points, and there was virtually no movement in fixed rates from the major banks.

Personal Loans:

Despite the two rate cuts late last year there has been little benefit passed on to personal loan customers. The average secured variable rate loan has only moved down 11 basis points over the past year, and unsecured variable rates have actually gone up! The best rates are offered by credit unions, whether looking at secured or unsecured.

Credit Cards:

As for personal loans, credit card customers have every right to feel they are getting a raw deal. The average credit card rates barely moved in December and even over the longer term are fairly static. Last month this blog singled out QANTAS Staff Credit Union for an honourable mention, having passed on November’s rate cut to their credit card customers, and they’ve done it again in December. Its Lifestyle Rewarder is one of the cheapest credit cards with rewards on the market, now at 13.49%.

Savings Accounts:

The heat has certainly come out of the savings account market with the average rate down 39 basis points in December alone, although some of this decrease may have been due to delays in passing on the November rate cut.

The best introductory rate accounts are currently offered by RAMS (6.12% but only to RAMS home loan customers) and UBank (6.11%). Interestingly these are both owned by major banks – Westpac and NAB respectively – so it seems there is real competition between the majors, but through their alternate brands more than their own. ANZ is taking a different approach, offering the third best rate in the market of 6.00%, but through its own brand rather than its online Smartypig brand.

Term Deposits:

There are still some great term deposit rates to be found as they haven’t been falling as fast as either at-call deposits or home loans. If the RBA continues its downward movement of the cash rate over the next few months now might be a good time to pull some money out of at-call accounts and have some assurance of your interest rate.

The best 6 month rates at the time of writing were UBank’s 6.11% and ING Direct’s 6.00% while the best 1 year deposit rate is 5.50% offered by Police Credit Victoria and Credit UnionSA, and a range of others close behind. Check out our Term Deposit selector tool to find the best rates for the term that you’re interested in.

Although the RBA has a month off from meeting to review the cash rate in January the Mozo RateChasers will be keeping a keen watch to see if the banks are going to do the right thing and pass on the same reductions to credit card and personal loan customers as the have for those with home loans.

Has your bank been naughty or nice on rate day? Find out who’s on Santa’s list with our snazzy infographic…

This Rate Chasers Roundup is a summary of rates movements in November 2011. To check today’s rates click on the highlighted product.

Home Loans:

Most lenders have now moved their variable rates following the Reserve Bank’s reduction in the cash rate early in the month. The only bank not to cut its variable rates by the full 25 basis points was NAB who, although still having the lowest standard variable rate of the big 4 banks (now 7.47%), only took 20 basis points off its rates. Perhaps to balance this NAB’s online subsidiary UBank has jumped in with one of the lowest variable rates around at 6.39% with its UHome Loan. Usually borrowers would have to pay 0.20% more than this for the first 3 years before qualifying for the ‘loyalty’ discount, but UBank is now offering this discounted rate to its first 1,000 successful applications.

Fixed rates continued to fall during the month with quite a few 1, 2 and 3 year options at around 6.0%. Better Option offered the best 1 year rate at 5.84% and the best 3 year rate at 5.89%, while Greater Building Society had the sharpest 2 year rate at 5.94%.

Personal Loans:

Unlike home loans, many personal loan rates have not yet benefitted from the Reserve Bank rate cut as evidenced by the average secured variable rate only coming down 8 basis points during November to 10.79%. The main area for competition in personal loans has been the fixed rates on secured loans where a number of lenders have passed on the full rate cut. Over the month we saw the average rate fall from 10.88% to 10.74%, with a range of offers coming in under 9%.

Credit Cards:

This is the product group that has benefited least from rate adjustments and during November the average rates barely moved. For credit cards with rewards the average rate went from 19.54% to 19.52%, and for cards without rewards the average rate went from 15.06% to 15.03%.

Qantas Staff Credit Union customers with its Lifestyle credit card have a reason to smile – its already low purchase rate of 13.99% was reduced to 13.74%, one of the few credit cards with a rewards program to feel the full effects of the lower cash rate.

Of the big banks, the only change we saw was ANZ cutting the rate on its Low Rate card by the full 25 basis points to 13.24%, although the rates on all of its other cards have not been adjusted.

Savings Accounts:

Unlike personal loans and credit cards, there’s been no hesitation in passing the rate cut on to savings account customers. During November the average rate fell by a neat 25 basis points, but this hasn’t been uniform across all products.

The market leaders for introductory rates for online savings accounts, UBank and Virgin Money cut their rates by 40 and 39 basis points respectively, leaving Virgin Saver on 6.12% and USaver on 6.11%. Both of these accounts are now beaten by HSBC’s Serious Saver on 6.20%, but as with all high introductory offers it pays to check what rates are paid beyond the introductory period.

Term Deposits:

As markets are anticipating more rate cuts and competition for deposits is easing, term deposit rates are continuing to move down.  Only small premiums are being paid for locking your money away for longer terms at the moment, making shorter terms seem the best value.

Over the last year the average rate for 6 month deposits has only fallen 9 basis points, however the average 1 year rate is down 71 basis points and the average 3 year rate has fallen 85 basis points.

For deposits of $10,000, the average 1 year rate is 5.22% but the best rate in November was QANTAS Staff Credit Union’s 5.70%.  For 3 year deposits the average rate is 5.34% and the best rate was 6.00% from Bank of Cyprus. Bank of Cyprus also payed 6.00% for 6 months.

The Mozo Rate Chasers will be keeping a close eye on whether the banks eventually pass the rate cut on to their credit card customers, and who benefits (and who misses out) if there’s another cut when the RBA meets on December 6. Whatever happens in the world of rates, we’ll have all the latest here.

Thank you Graeme Samuel. This past weekend, the ACCC chair was quoted as saying that the big banks’ action “borders on… misconduct” in the way they have been signalling their intention to increase interest rates. This is something that’s been bothering me for some time as well, and if I’d been a faster typist last week I may have beaten him to the punch on this very page.

The Big 4 have been publicly signalling their intentions for some time now, via statements from their PR people, in-house economists and their CEOs. These aren’t just signals to the public, or to the markets. These are signals to each other. Like Mr Samuel I’m not suggesting anything technically illegal here, but you don’t need to formally agree to fix prices to limit competition.

These signals received from each other through the public domain will very definitely impact the banks’ plans. Most banking observers will clearly remember the backlash from Westpac’s “almost double” rate rise in December 2009 (compounded by their banana smoothies analogy). And prior to that, July 2009 when Commonwealth Bank made a 10bp increase without any Reserve Bank moves and was berated by everyone from the PM down. But the banks will also recall April 2009 when all 4 majors failed to pass on the full RBA rate cuts. And they know that, if they act together or reasonably closely together, then the public reaction is a more generic bank bashing and not a PR nightmare targeted at any one of them. So these “I will if you will” signals are playing a very real part in the pricing deliberations within the banks. And that should concern anyone interested in genuine competition.

Competition is also the missing ingredient in the argument between the banks and everyone else about whether funding costs have genuinely risen. The point is not whether costs have gone up, but whether it necessarily follows that prices must go up too. The tone of the Big 4′s statements implies that it is their natural right to extract any cost increases directly from their customers. Of course it is a sensible business decision to attempt to recoup increased costs. But it is not automatic that it must be done. APRA and the RBA tell us that the banks are strong, so it is not necessary that they maintain margins for reasons of security. They are maintaining margins because they choose to and because they can. There is not enough pressure from customers and competitors to force them to make other choices. It is an oligopoly.

But it is more than that. It is an oligopoly that enjoys significant protection, via its central place in the economy and the benefits that flow from it – eg government guarantee on deposits in the GFC. There are other industries with the privilege of being protected oligopolies, but where the players are not allowed to exercise this kind of power without some restriction. Energy companies and health insurers spring immediately to mind: both of these have their pricing decisions heavily regulated. Perhaps the big banks should consider their position of privilege and treat it with respect, or they may find themselves subject to pricing restrictions of some kind. The Greens already have several policies relating to bank pricing regulation, on ATM fees for example. They are in a position to wield some influence. And wouldn’t the voters in the mortgage-belt marginal seats love it!

Customers do notice, and they do care. Mozo’s customer rate and review system saw a distinct reaction to the home loan rate rises in December 2009: Westpac’s interest rates went up 45bp and their customer ratings nosedived, ANZ and Commbank upped rates in the mid-30s and saw no real change to customer satisfaction, and NAB stuck to the RBA’s 25bp rise and extracted a small gain in how customers saw them. Homeowners may not have as many alternatives as they once did, and switching providers is still very time consuming, but there are cheaper providers. And the more the Big Banks erode their customers’ satisfaction, the more vulnerable they will become to challengers or regulators or both.

Compare home loans at mozo.com.au

Home-owners will have breathed a sigh of relief at the RBA’s decision this week not to raise interest rates. But have we really dodged the higher-repayments bullet for another month? Or are the big banks preparing to open fire — and raise their rates regardless of the Reserve Bank?

Despite reports from ANZ, Westpac and NAB that they’d follow the RBA in maintaining current rates, each bank has left a back door open on an out-of-cycle rate rise. Take ANZ’s carefully worded commitment: “Interest rates are always under review, but there is no immediate trigger at the moment for any change.” Could an immediate trigger at another moment change that tune — for example, a CBA rise next week?

ANZ chief executive Mike Smith has already hinted at his interest rate intentions, saying that with the increased cost of foreign funding, “something has to give”. CBA’s Ralph Norris put his additional funding costs at $1.2bn a year. And while the RBA has declared that bank profits are more than healthy enough to cover these costs – earnings are up and the banks are more profitable than they were pre-crisis – the Big Four aren’t known for absorbing increased costs for the benefit of the Australian home owner.

So the general feeling is that the big banks were less than impressed when the RBA defied market expectations and sat tight on a base rate of 4.5%. It’s one thing for them to slip a few extra points onto an RBA raise. It’s another for them to slap on an out-of-cycle rise.

Back to those bullets, however — and you can probably expect a Big Four rate rise in November, regardless of the RBA’s decision. Prior to that, any enemy fire is expected to come from the Commonwealth corner, as they have the largest mortgage book and the greatest exposure to increased cost of foreign funding. Also, because they’re yet to declare their immediate position.

And any rise from CBA will likely be met with moves from the other big banks. Don’t you just love an oligopoly?

To escape the firing squad — why not check out the home loan competition? Our rate chasers will be keeping track of any rate moves throughout the month so visit our Reserve Bank Interest Rate page for all the latest info.

And stay tuned for our Rate rise punt: the real Melbourne Cup Day odds.