Retirees and people saving for a home deposit are expected to lose out in 2019 as the big banks continue looking for ways to protect their shareholders’ returns in the face of tougher funding costs.

Finding savings products offering a 3 per cent or higher rate on return became nigh on impossible in 2018, and there’s unlikely to be an improvement in the coming year, according to Mozo product data and compliance manager Peter Marshall.

Speaking to The New Daily, Mr Marshall said poor savings rates have come about as the costs faced by banks have increased and forced them to look for new ways to protect their shareholders’ returns.

The increased costs facing banks stem from three main drivers, Mr Marshall said:

• Lower mortgage volumes weighing on the revenue banks generate 
• Additional compliance costs in the wake of the banking royal commission
• An elevated bank bill swap rate (BBSW), making it more expensive for banks to borrow money from each other

The end result is an environment where banks have to find new ways of keeping themselves profitable, as highlighted by NAB’s Thursday announcement it will increase variable mortgage rates despite the expectation the RBA’s cash rate (the rate it lends to other banks at) will stay at its current, historically low level, or even take further cuts.

The banks are “pushing at both sides of their customer base – both lenders and depositors – in order to build out their interest margins,” Mr Marshal said.

“The message for depositors is with the RBA likely to keep rates on hold or perhaps even cut rates once or twice this year, deposit rates are unlikely to improve and are likely to get worse.

“It’s depositors that are getting squeezed.”

Depositors subsidising home loans

Canstar financial services group executive Steve Mickenbecker said the big losers in the banks’ push for dividends are retirees and people saving for a deposit on a home.

“That group’s taken a real hit in the past,” he said, and will not only bear the brunt of any further RBA rate cuts through reduced savings rates, but the reduction won’t alleviate banks’ wholesale funding woes, and will instead simply cover their costs and shareholder payouts.

“In a way it means that retail depositors are now subsidising everyone else; subsidising home loan borrowers and subsidising the overseas wholesale funding price,” he said.

Mortgage holders are effectively subsidising banks’ losses in other areas. Photo: AAP

“The banks are in a situation where funding costs have gone up, so if the wholesale funding costs go up, their rates have to go up, now the RBA is taking a longer term view and saying ‘what if we see a slowdown in the world economy, what will we see then?’, so it’s a different sort of question.

“The RBA is saying ‘we might have to reduce costs if we see a slowdown in the global economy, because we want to make sure we manage the economy.’ Banks are taking a much shorter-term view and saying ‘our funding costs have gone up, and that means we have to increase rates to borrowers, so the two aren’t consistent.”

Mr Marshall – who expects the RBA will cut not once but twice this year – agreed with Mr Mickenbecker, and suggested anyone hoping to save money this year place that money into a term deposit with a fixed rate of return sooner rather than later.