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ACCC confirms terms for rate hike inquiry

Details of the inquiry into how banks set interest rates for savers and home loan borrowers have been revealed by the competition watchdog.

The Australian Competition & Consumer Commission (ACCC) has confirmed the launch of its inquiry into how banks set interest rates for savers and borrowers.

The inquiry, which was called for by federal Treasurer Jim Chalmers MP, aims to consider how authorised deposit-taking institutions “set interest rates for savers, including differences in interest rate increases between bank deposits and home loans”.

It will look at matters including, but not limited to:

  • The rates of interest paid on amounts deposited or held in retail deposit products
  • The terms and conditions for the supply of retail deposit products to consumers
  • Supplier strategies in relation to retail deposit products, including supplier approaches to setting interest rates on retail deposit products
  • Supplier decisions relating to terms and conditions on which retail deposit products are supplied in light of changes in the Reserve Bank of Australia’s target for the cash rate
  • The nature and extent of price and non-price competition in the supply of retail deposit products
  • The use of retail deposit products as a source of funding for suppliers’ provision of credit

As part of the inquiry, the ACCC will consult with financial regulators, including the Reserve Bank of Australia, the Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC).

The inquiry into Australia’s $1.3 trillion savings market comes amid a rapidly rising rate environment.

Indeed, the Reserve Bank of Australia has increased the official cash rate for nine consecutive months — taking it from its emergency low setting of 0.10 per cent last year to 3.35 per cent in February.

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The ACCC noted that “in most cases banks have fully passed through the cash rate target increases to their home loan interest rates,” however this does not necessarily seem to be the case for savers.

The competition watchdog flagged that increases in interest rates on deposit products appear to have “typically been smaller and less consistent”.

In many cases, banks have only applied increases in the cash rate to some of their deposit products, often with conditions attached, it added.

ACCC chair Gina Cass-Gottlieb commented: “We welcome this direction from the Government to shine a light on the retail deposit market and rate-setting decisions of banks. 

“We are aware that deposit and savings accounts are an important source of income for many Australians, typically supplementing their income from employment, superannuation and the pension.

“We will also examine the extent to which consumers can benefit from shopping around and switching, and what other barriers are stopping consumers from seeking a better return on their savings.”

The ACCC is expected to release an issues paper in the coming months and is directed to report to the Treasurer by 1 December 2023.

The banks are also expected to answer questions relating to interest rates paid on deposits and loans as part of a new review of Australia’s four major banks by the House standing committee on economics.

 [Related: Treasurer urges ACCC to look into deposit rates]

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