The latest Reserve Bank board minutes make a curious meal – the proverbial curate’s egg – with no promise to quickly make life nicer for borrowers or savers.
With inflation tame and economic growth a bit below par but expected to get back to it next year, maybe, there’s not likely to be much action on the interest rate front. There are plenty of commentators around still calling on the RBA to cut rates by another 25 or 50 points, but I’m still calling on Lotto to give me a million-dollar win without much success. Another trimming is much more likely than a rise, but dramatic moves are off the table, barring something catastrophic from overseas again roiling markets.
As suggested here last week, interest rates should still ease without the RBA moving its official cash rate, but the minutes warn it will be a slow process. The RBA says banks’ cheaper wholesale funding costs will take time to move through to their bottom line and that competition for domestic deposits remains strong. Mind you, that board meeting was before the CBA results showed our biggest mortgage lender had indeed been able to increase its margins a smidge.
So there’s no magic bullet there for those wanting lower interest rates – it’s still a matter of playing one institution off against the other to negotiate better rates yourself.
(And a little digression here for those who complain that credit card interest rates have barely come down at all: That’s sort-of right, the standard Visa or Mastercard from your local bank continues to charge an outrageous rate that has barely moved – but you’re a mug if you’re paying it. If you can’t manage to pay off your monthly credit card bill in full, there are plenty of no-frills, no frequent-flyer-points cards around that have less than usurious rates. And if you’re sailing so close to the financial wind that you’re not paying off your cards, you should forget about chasing points – they aren’t worth the interest bill.)
Perversely, it’s a similar message for savers bemoaning the lower rates on offer from banks. The same set of RBA minutes paint a picture of interest rates in Australia staying down for some years. Inflation is staying low and economic growth this year is expected to be only about 2.5 per cent, rising to around 3 per cent later next year. The competition among banks for local deposits is stopping them falling through the floor, but those days of a lazy 6 per cent and more for parking your spare cash in an on-line account are gone for as far as the eye can see. The rates on offer are more likely to slide further than rise.
Which is why savers, like borrowers, have to be prepared to do the little bit of work required to get the most out of their money – and that always means not trusting their friendly local bank manager to do the best thing for them. There are plenty of comparison sites around that demonstrate the best interest rates are to be had from on-line brands, not the bricks-and-mortar institutions.
Indeed, there’s little difference between the mug paying 20 per cent on a credit card debt and the mug accepting 3 per cent (or much worse) on their savings in a bank. The on-line brigade – Ubank, Rabo, ING the obvious candidates – are just as safe as the CBA, NAB, Westpac and ANZ but will pay more to borrow your money, if you let them.
If you’re taking what the big four banks are offering for deposits, you must be lazy or rich enough to think you don’t have to count pennies. Aside from making use of a mortgage offset account (normally by far the best option for owner-occupiers), leaving cash in your bank instead of sweeping it to and from an on-line alternative is an act of charity – and our bankers don’t need that.