Three of the big four banks as well as neobank 86 400 have followed the Commonwealth Bank of Australia (CBA) in announcing a reduction in interest rates on savings accounts in response to the recent decrease in the official cash rate.
The Reserve Bank of Australia (RBA) announced in early March that it had lowered the official cash rate by 25 bps from 0.75 per cent to 0.5 per cent, making it the fourth reduction since June 2019, when the easing cycle commenced.
In response, Westpac, NAB and ANZ - along with several non-major lenders - announced mortgage rate reductions across their home loan products.
The three major banks, as well as 86 400, have now announced they have reduced interest rates on savings accounts, and by as much as 35 basis points in the case of ANZ.
ANZ’s online saver account has been reduced by 35 bps from 1.55 per cent to 1.20 per cent, while its progress saver account has been reduced by 35 bps, from 1.60 per cent to 1.25 per cent.
The bank has also announced a 35 bps cut to its progress saver for kids account, from 1.6 per cent to 1.25 per cent.
NAB has cut 25 bps from its NAB iSaver Intro Rate, decreasing it from 1.55 per cent to 1.30 per cent. Even the ongoing rate for this savings account has been reduced six basis points from 0.11 per cent to 0.05 per cent.
NAB’s Reward Saver has been also been reduced by 25 basis points, down from 1.50 per cent to 1.25 per cent.
The second largest bank is the latest to cut rates, announcing on Friday afternoon it will cut savings rates between five and 25 bps, effective from 17 March.
Westpac eSaver and Westpac Life savings accounts have dropped by 25 bps from 1.55 per cent to 1.30 per cent.
Meanwhile, 86 400 has also cut its rate from 2.25 per cent to 2.00 per cent.
RateCity.com.au research director Sally Tindall said the latest round of cuts to savings accounts by the two major banks is a “double whammy” for customers, who already had their rates slashes less than two months ago.
“Once again, regular savers are being hit the hardest, with up to 35 bps shaved off their bonus rates, in the case of ANZ,” she said.
“It's a grim outlook for Australian savers, many of whom are now earning just 0.05 per cent interest on their cash. While there are still a handful of savings rates still offering rates above inflation, the chances of them sticking around are low, especially with another cash rate cut likely."
The banks' decision to shave savings rates came after the Commonwealth Bank of Australia (CBA) lowered rates on its savings accounts by between 25 and 30 bps.
Ms Tindall had said the savings cuts were inevitable, as the banks sought to recoup some of the costs of passing on the full 25 bps cut to home loan customers.
Will the bank recover costs?
Following this move by the banks, Ms Tindall told Mortgage Business that despite the banks’ decision to lower interest rates on savings accounts to recover costs from cuts in mortgage rates, they would still face a shortfall, at least in the short term.
“The problem is, in this low rate environment, many of the banks’ ongoing savings rates are already within 25 bps of zero, which makes it impossible to pass full rate cuts on to all savings customers,” she said.
“While some of the big bank cuts to introductory and bonus rates have gone beyond the 25 bps they pass on to mortgage holders, it’s worth remembering that these cuts only affect people who qualify for this extra interest.
“However, the big bank cuts to ongoing rates have been much smaller, for the simple fact that their rates were already just above zero. As a result, there is likely to be a shortfall, at least for now.”
She noted, for example, that while CBA took 35 bps off the introductory rate of their NetBank Saver account, this only would impact new customers. Existing customers who have had the account for over five months have had their rates cut by only five basis points.
She said this was a “far cry” from the 25 bps cut mortgage holders received.
“The big banks have been clear the decision to pass this rate on was, at least in part, to do their bit for the ailing economy in what are unprecedented times,” Ms Tindall said.
“It’s highly likely they are taking a hit as a result of this decision but they have said it was the right thing to do.”
So far, almost 30 banks have cut their savings rates in the wake of the RBA’s most recent cash rate cut, and Ms Tindall expected more banks would follow.
"It will be interesting to see what happens if the RBA cuts again in April,” she said.
“With many ongoing savings rates hovering just above zero, there is little ground to give.”
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.