Savers and self-funded retirees have suffered further ‘pay cuts’ after the major banks swung an axe at term deposit interest rates.
According to financial comparison website Canstar, 167 changes were made to term deposit interest rates over the past fortnight.
Of those changes, 164 were rate cuts.
For example, between May 4 and May 11, the average cut to six-month rates on deposits of $10,000 was 0.18 percentage points, taking the new average for this product down to 1.25 per cent.
NAB led the pack.
On May 5, it slashed its 10-month term deposit rate from 1.75 per cent to 0.90 per cent – just two months after boosting its lead term deposit rates to help customers suffering financial hardship.
Commonwealth Bank continued the downward spiral on Monday, announcing it would cut rates on most products between 5 and 20 basis points (0.05 to 0.20 percentage points).
Only customers with 11-month terms were spared (for balances ranging between $5000 and $1,999,999).
On the savings front, Westpac dropped its bonus and promotional savings rates by 25 basis points, despite the Reserve Bank leaving interest rates on hold in May.
And savers with smaller digital banks weren’t immune, either.
On May 11, challenger bank Xinja finally buckled and cut its savings rate from 2.25 per cent to 1.80 per cent.
It marks an increasingly torrid time for savers and self-funded retirees, who were already reeling from years-long falls in savings and term deposit rates.
And it also suggests banks are scrambling to find ways to pay for their multibillion-dollar coronavirus measures which, among other things, included six-month loan deferrals and changes to credit card repayments.
The Australian Banking Association said on Saturday that banks have so far deferred $211 billion worth of repayments across 703,000 different loans.
Meanwhile, Canstar financial services executive Steve Mickenbecker said the latest round of cuts have pushed older and more financially vulnerable customers who rely on savings “between a rock and a hard place”.
With returns decreasing and other traditional avenues of income generation drying up amid a volatile stockmarket, some self-funded retirees may be forced onto the pension earlier than anticipated.
“In unwinding the 1.7 per cent [rate], there’s a whole segment of people now who are back to business as usual and earning themselves 1.3 to 1.35 per cent on term deposits,” Mr Mickenbecker told The New Daily.
“Banks have already cut share dividends and that’s been the lucrative strategy [for self-funded retirees] over the last few years to take those fully franked dividends, so their options are looking pretty skinny.”
According to Canstar’s analysis, Qudos Bank (1.90 per cent) and Firstmac (1.95 per cent) offer the most competitive rates on 12-month term deposits.
As for why savers have borne the brunt of rate cuts, Mr Mickenbecker said it was because banks’ wholesale funding costs had fallen below the official cash rate (0.25 per cent).
He said it’s “unsurprising” banks are now less inclined to boost their deposits, as it’s comparatively more expensive.
“Banks do find themselves in a position where they have to keep attracting retail money to maintain their credit rating,” Mr Mickenbecker said.
“But the major providers don’t have to pay as much because they’ve got brand distribution and everyone knows them because of incumbency – but there are smaller players out there offering better rates.”