Savers finally see interest rates rise

by AAP | September 14, 2022 12:14 | New

Savers are finally getting decent interest rates as banks seek to cover the rising cost of funding mortgages.

When the Reserve Bank of Australia began raising interest rates in May, banks were generally quick to pass the higher interest rates on to mortgage holders, but more reluctant to do the same to savers.

However, RateCity research director Sally Tindall said some banks are now actively seeking savers.

With mortgage funding costs rising due to the rise in the official exchange rate, Ms Tindall said savers’ deposits were becoming an increasingly important part of the funding mix.

“That’s why the lowest rate home loan providers are now primarily banks, rather than the non-bank lenders we’ve grown accustomed to,” she said.

“The good news is that savers have once again become a hot commodity after years of lackluster returns, but they will still have to shop around if they want to get the best deals.”

Market leaders now offer interest rates of up to 3.60% for savers.

But Ms Tindall said some banks were still picking and choosing which savings accounts to charge higher interest rates to, or not raising rates at all.

The big four banks raised rates by 0.50% for variable mortgage customers following September’s cash rate decision, but National Australia Bank and ANZ have yet to announce interest rates. higher interest on one of their savings accounts.

Commonwealth Bank and Westpac have so far passed on a higher interest rate to some savings accounts, but not others.

Rising interest rates also triggered a surge in mortgage refinances, with July recording the second-highest monthly total for loan refinances on record.

Once the September central bank hike is applied, a home loan of less than 4% will be considered a competitive floating rate, according to RateCity, with Gateway Bank currently offering the lowest rate at 3.74%.

Ms Tindall said people were refinancing in droves because many banks were cutting rates for new customers.

Households with fixed-rate mortgages have also been forced to refinance when their loans expire, with Finder research showing nearly $30 billion in fixed-rate loans will expire by the end of the day. of the year.

Graham Cooke, head of consumer research, said the end of low fixed rates could force many borrowers into mortgage stress as their repayments could suddenly increase to as much as $600 a month.

Rising interest rates are also putting pressure on small businesses.

Small businesses are struggling to pay their bills on time, suggesting a wave of insolvencies could be approaching.

Defaults are up 53% from the same period last year, according to the CreditorWatch index which measures business risk.

Businesses struggling to pay each other is usually a sign of financial stress, with high inflation, rising interest rates, labor shortages and supply chain disruptions. supplies that are starting to take their toll.

Food and beverage businesses saw the biggest increase in their inability to pay, followed by the arts and recreation sector and the education and training sector.

Patrick Coghlan, director of CreditorWatch, said the increase in delinquencies was worrying.

“The multiple challenges facing many businesses, whether it’s rising inflation and interest rates, labor shortages, or the ongoing impacts of the COVID pandemic, conspire all to make it even harder to pay the bills,” Coghlan said.

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