The National Australia Bank’s interim profit of $3.15 billion result brings the aggregate first half earnings of the four major banks to around $15 billion.

It’s great news for most senior executives in the industry who are in line for windfall bonuses at the end of the year.

While chief executives will again make headlines when their pay packets are disclosed in December, most of the performance-based cash booty will be doled out to business and transformation managers who continue to migrate thousands of local jobs to countries such as the Philippines, India and New Zealand.

Rewards will also trickle through to shareholders, with all of the banks announcing fat rises in first half dividends.

And the losers are …

The biggest losers in this earnings feast are more than 20 million household depositors who stump up most of the cash to fund the banks’ lending activities.

Banking cannot exist, let alone thrive – as it clearly does in Australia – without people willing to plant surplus cash in the care of financial institutions.

Our way of living depends on it.

The problem, however, is that competition in the Australian deposits market has almost dissipated in the last 18 months, even though the cost of managing that cash has plummeted as electronic banking has boomed.

According to the financial services research firm Canstar, the highest rate in the market for a $25,000 deposit fixed for up to 12 months is 3.9 per cent (Victorian Teachers Mutual Bank and Members’ Equity Bank).

Rates offered by ANZ and Westpac for six month deposits are now as low as 2.5 per cent.

National Australia Bank virtually admitted … that depositors had subsidised the company’s bottom line

The ongoing rates offered by the majors for online accounts have fallen even more dramatically in the last four years.

When these accounts were introduced more than a decade ago, the banks argued that they were able to offer premium rates – as high as 10 per cent – because they were cheaper to manage.

They don’t use this rationale anymore.

All of the major banks are now offering only 2.5 per cent on their flagship online accounts.

At least they told us

After announcing its record first half profit on Thursday, National Australia Bank virtually admitted in its press release that depositors had subsidised the company’s bottom line.

The bank indicated that its margins on deposits and lending were impacted favourably by “lower deposit, funding and liquidity costs”.

Since 2007, when the global financial crisis made it more difficult and costly for Australian banks to raise wholesale funding overseas, the big institutions have come to rely on the deposits of local households and businesses to fund their lending.

Deposits now finance almost 60 per cent of domestic bank loans compared to around 40 per cent in 2007.

According to the latest data published by the Australian Prudential Regulation Authority, Australian households have $650 billion of deposits circulating in the banking system. About $530 billion, or 82 per cent of this cash, is held with the four majors.

Despite their dependence on domestic savings, banks have crunched deposit rates as a way of boosting returns to investors and ensuring that executives can meet performance hurdles on their lucrative bonus plans.

In the absence of robust price competition, the big banks have created no incentive for customers to move their deposits to another institution.

The price signals in the domestic deposit market almost suggest that the major banks are involved in an implicit form of collusion.

If the major banks were serious about balancing the interests of depositors against those of investors and borrowers, they would introduce incentives for executives to deliver value on customers’ deposits.

A pipe dream, I know.

George Lekakis has been a finance journalist for 20 years, working at the Herald-Sun, the Australian Financial Review and Alan Kohler’s Eureka Report. He currently teaches investigative and business journalism at Monash University.