Good news for savers. The big four banks are engaged in a bitter price war to attract more deposits from customers and are offering more generous deals on savings accounts compared to offers for mortgage customers.
Indeed, while the banks have refused to pass on the whole benefit of the two most recent reductions to the official cash rate to their mortgage customers, the banks have protected savers by absorbing some of the rate cuts and keeping savings rates artificially high.
In effect, mortgage borrowers are subsidising the generous rates on savings accounts. And while that may infuriate hard-up homeowners, it is welcome news for those who rely on income from their savings.
According to research by Ratecity, since the two rate cuts last year, the big banks have passed on cuts averaging of 0.40 per cent to their borrowers, but have limited the cuts to savers to just 0.20 per cent.
This means that while borrowers might be frustrated that the entire 0.50 per cent reduction in the official cash rate was not passed on, savers have been spared the majority of the cut, making depositing money with the banks all the more attractive.
The banks are giving savers a better deal because the cost of raising funds on the wholesale markets is still very expensive, and it is cheaper for the banks to attract savings through customer deposits in savings accounts. However, they will only attract those savings with decent rates, so we’re seeing some healthy competition between the big four, especially for term deposit customers.
Savers can now get rates of up to 6 per cent on instant access accounts, around 5.30 per cent on three month term deposits from TIO Banking and Citibank. ING Direct is offering nearly 6 per cent on 12-month term deposits, as are CUA and U-Bank. However, as rates are cut in the coming weeks and months, these great offers may not last, so get in while you can.