Commbank CEO defends cuts to deposit and home loan rates

William Jolly By on October 17, 2019
 
Darling Park Commbank

Darling Park, Sydney. Photo source: Commonwealth Bank.

Commonwealth Bank CEO Matt Comyn has defended his bank’s decision to cut home loan rates, saying record low interest rates are hurting its depositors.

Commonwealth Bank – as well as the remaining three of the big four – copped a serving from the Treasurer after failing to pass on the Reserve Bank’s cash rate cut in full to home loan customers.

In fact, this decision by the big four has led to a new inquiry by the ACCC into how the big banks price their mortgage products.

But at the Commonwealth Bank annual general meeting in Sydney this week, Mr Comyn defended the smaller than desired changes to home loan rates, stating that deposit customers far outweighed residential borrowers on its books.

Mr Comyn said around 69% of CBA’s funding came from deposits – a 9% increase from 10 years ago – and that changes to deposit rates had the largest impact on the bank and its customers.

“Lower interest rates are a feature globally, and the local cash rate has fallen 75 basis points since May,” Mr Comyn said.

“This low rate environment creates challenges for our customers and for financial institutions.

“We very much recognise that customers who rely on interest payments from savings balances have seen this income decrease.”

During the meeting, CBA cited around $160 billion worth of deposits it cannot reduce rates on, given rates for savers are already about as low as they can go.

Source: Commonwealth Bank

“As the Reserve Bank cash rate has reached record lows, we face a difficult balancing act between the multiple, valid interests of our stakeholders. Particularly given it is currently not feasible to pass on the full rate reduction to more than $160 billion of our deposits which are at, or near, zero rates,” Commbank said earlier this month.

“In balancing these interests, we have carefully considered how to best meet the needs of over 6 million savings customers – who may find it challenging to make ends meet with record low savings interest rates – with the needs of our 1.6 million home loan customers, who want to pay less on their mortgages; and the needs of our shareholders, many of whom are retirees who rely on our dividend.”


Indeed, the average term deposit rate for Commbank is around 1.35% p.a. across all products.

For term deposits across all of the big banks, this average figure falls to roughly 1.20% p.a. – far below the rate of inflation.

Many savers and depositors and savers with banks around the country (not just the big banks) now face the prospect of their savings going either backwards or not moving at all, with the average deposit rate across the majority of institutions sitting at just above 1.40% p.a.

Prior to October’s rate cut, the average was 1.56% p.a, showing just how many banks have had to cut rates.

Image result for homer australia america gif
A visual representation of deposit earnings in a low-rate environment.
Source: Imgur

Big four cut savings account rates

Despite Mr Comyn’s insistence that Commonwealth bank can’t afford to cut rates to deposit products by too much, each of the big banks have still made significant changes to their non-introductory rate savings accounts:

  • The Westpac Life savings account has been reduced by 25 basis points to a maximum interest rate of 1.65% p.a.
  • The NAB Reward saver savings account has been reduced by 25 basis points to a maximum interest rate 1.61% p.a.
  • The ANZ Progress Saver savings account has been reduced by 25 basis points to a maximum interest rate of 1.60% p.a.
  • The Commonwealth Bank GoalSaver account has been reduced by 25 basis points to a maximum interest rate of 0.90% p.a.

So each major bank has cut savings account rates by 25 basis points for its non-introductory accounts.

Commbank noted in its post-RBA cut press release it was only reducing the interest rate on its popular NetBank Saver product by 5 basis points, but this is only an introductory account for the first five months.

Once the five months are over, the total interest rate on this account is an insignificant 0.10% p.a, which is really more of a ‘losing money account’ rather than a savings account once inflation and tax on interest are accounted for.

Last week some of the highest-rated products on the market from the likes of 86 400, Up and BOQ all cut their own savings account interest rates by as much as 35 basis points.

ING also cut its maximum Savings Maximiser interest rate by 25 basis points despite cutting home loan rates by 25, so there’s really not much respite to be found anywhere for savers at the moment.

Provider Total interest rate p.a. Base interest rate p.a. Bonus interest rate p.a.  
Bonus Saver 2.50% 0.80% 1.70% More details
Save Account 2.25% 0.40% 1.85% More details
Saver 2.25% 0.50% 1.75% More details
Fast Track Saver 2.15% 0.35% 1.80% More details
Total interest rate p.a. Base interest rate p.a. Bonus interest rate p.a.
My State
2.50% 0.80% 1.70%
More details
Save Account
2.25% 0.40% 1.85%
More details
Saver
2.25% 0.50% 1.75%
More details
Fast Track Saver
2.15% 0.35% 1.80%
More details

*Data accurate as at 11 October 2019. Rates based on a savings balance of $10,000. Introductory bonus interest rate products not included. Sorted by total interest rate, then by provider name (A-Z).

ANZ, Westpac cut term deposit rates too

Two of the big four banks have also slashed term deposit rates this month.

Westpac yesterday cut various term deposit products by up to 15 basis points following a cut of up to 20 basis points in September.

ANZ meanwhile reduced the interest rates on its Advance Notice deposit products by up to 30 basis points on 11 October, after cutting by up to 15 last month.

Other key term deposit changes so far in October include:

  • UniBank and Teachers Mutual bank cutting rates by up to 15 basis points
  • St. George, BankSA and Bank of Melbourne (owned by Westpac) cutting rates by up to 15 basis points
  • Newcastle Permanent cutting by up to 40 basis points
  • ME cutting by up to 35 basis points
  • Greater Bank cutting by up to 45 basis points
  • Bankwest cutting by up to 20 basis points
  • BOQ cutting by up to 40 basis points
  • ING cutting by up to 15 basis points

The table below displays some of the highest one-year term deposit rates on the market this month.

Company Advertised
interest rate
Interest
frequency
 
Judo Bank 2.00% Monthly, annually, end of term More details
Nexus Mutual 1.85% End of term More details
Bank of Sydney 1.75% End of term More details
Teachers Mutual Bank 1.75% Monthly, annually More details
bcu 1.75% End of term More details
Advertised
interest rate
Interest
frequency
Judo Bank
2.00% Monthly, annually, end of term
More details
Nexus Mutual
1.85% End of term
More details
Bank of Sydney
1.75% End of term
More details
Teachers Mutual Bank
1.75% Monthly, annually
More details
bcu
1.75% End of term
More details

*Rates correct as at 18 November, 2019. Rates based on a $50,000 deposit.

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William Jolly
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.
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