132 Fixed Rate Cuts and Westpac's Savings Rate Reduction: Key Insights for Australian Borrowers and Savers
This week, as the Federal Reserve made a significant move by cutting interest rates, Mozo reported on the highest savings rate seen in over 11 years. Alongside this, Westpac announced a reduction in its savings rate, and there were 132 cuts to fixed-rate home loans. Additionally, new insights emerged regarding Australians' interest in accessing their superannuation early.
Let’s delve into the details!
Following the Federal Reserve's decision to lower its cash rate by 50 basis points, speculation is mounting regarding the Reserve Bank of Australia's (RBA) next steps and the timing of potential rate cuts. However, the situation remains complex.
On Thursday, the Australian Bureau of Statistics (ABS) released unemployment data indicating that the labor market remains robust, with unemployment steady at 4.2%. This adds layers of complexity to the discussion about when the RBA should implement a rate cut, as the RBA aims to balance returning inflation to target while maintaining full employment.
Rachel Wastell, Mozo’s personal finance expert, noted, “The risk the RBA is considering is that cutting the cash rate too early while unemployment is low could prolong the time it takes for inflation to return to the target range of 2 to 3 percent.”
Currently, annual inflation stands at 3.8%, according to data from the June quarter, indicating that there is still a distance to cover before reaching the RBA's target. The next quarterly inflation data is expected on October 30.
“While borrowers are eager for a cut after the most aggressive rate hiking cycle since the early 90s, an RBA cut this year is not guaranteed. Borrowers should brace for an extended pause, at least until the RBA receives the quarterly inflation data at the end of October,” Wastell added.
There is speculation that the RBA might consider a classic Melbourne Cup Day cut, potentially offering borrowers an early Christmas present, contingent on inflation trends.
Currently, all major banks, except for the Commonwealth Bank, are forecasting a rate cut next year, with predictions of a cash rate cut in November 2024.
Despite ongoing economic uncertainties and the RBA's prolonged cash rate pause, the retail banking landscape in Australia is evolving, particularly in the fixed-rate home loan sector. As reported a few weeks ago, numerous lenders have started to reduce fixed rates in anticipation of an RBA cut, with 23 lenders cutting fixed rates since early September.
This week, the trend continued with Community First Bank and Easy Street reducing fixed rates for 1-3 year terms by 20 basis points. Today, six additional lenders joined the ranks, including AMP, Bendigo Bank, ME Bank, Qantas, MyState, and Summerland Bank, all cutting fixed rates between 10 and 55 basis points across 1-5 year terms.
AMP Bank made the most significant cuts, reducing 2 and 5 year terms by 25 and 45 basis points, respectively. Bendigo Bank cut 1 and 2 year terms by 45 basis points, while MyState reduced 2 and 3 year terms by 55 basis points. Qantas Money also made notable cuts, particularly on 3 year terms, reducing them by 55 basis points. ME Bank made similar reductions across all 1-5 year terms, between 20-25 basis points.
According to the Mozo database, of the 132 fixed rate cuts in September, over half (51%) were for 2 and 3 year terms, with nearly three-quarters (74%) occurring within the 1-3 year range. However, lenders are focusing on larger cuts for longer terms, particularly for those exceeding 20 basis points.
“Lenders are clearly preparing for what could be a pivotal moment in the rate cycle, with a focus on reducing rates for longer terms,” Wastell explained.
With numerous cuts in September, especially for 2- and 3-year fixed rates, banks are positioning themselves to attract borrowers with competitive offers before the RBA begins to cut rates, setting rates based on anticipated needs during that period.
These adjustments have led to a decrease in the average 2 and 3 year fixed rates, creating a more competitive fixed-rate environment ahead of any official cash rate changes from the RBA.
The average 2 year fixed rate on the Mozo database has fallen by 6 basis points to 6.23%, while the 3 year rate has also dropped by 6 basis points to 6.15%, based on a $500,000 owner-occupier home loan with principal and interest at an 80% loan-to-value ratio.
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In a recent move, Westpac followed ANZ's lead by reducing its Life savings account base rate by 15 basis points, from 2.00% p.a. to 1.85% p.a. At the same time, they increased the bonus rate on this account by 15 basis points from 3.00% p.a. to 3.15% p.a., keeping the maximum rate available to customers unchanged.
This follows ANZ's recent adjustments, and while the changes are minor, they should prompt savers using this account to ensure they meet the bonus conditions to maintain the maximum rate.
“Bonus rates can be appealing if you meet the necessary conditions to secure the high interest rate, but with changes to base rates on savings accounts—the rate your savings account will revert to if you fail to meet those conditions—savers need to remain vigilant,” Wastell emphasized.
As savings rates continue to decline across the board, with many lenders cutting term deposit rates in anticipation of a potential RBA cut, an unexpected twist has emerged. On Monday, The Mutual Bank introduced a new special rate of 6.00% p.a. for its Internet Saver product, available for savers with balances between $50,000 and $100,000 until January 2025.
“This marks the first time since August 2013 that a savings rate starting with a 6 has appeared on the Mozo database,” Wastell noted.
“In a landscape of declining deposit rates, this special offer for Australian savers demonstrates that banks are still competing for your savings, and such returns could be highly beneficial for those saving for a house deposit.”
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This week, Mozo released new research indicating that over half of Australians (56%) believe they should have the ability to withdraw money from their superannuation at any time. Furthermore, 1 in 6 Australians with super funds would withdraw an average of $21,297 from their super before retirement if permitted.
“Mozo’s research reveals that more than half of Australians with super funds feel they should have access to their super at any time, despite its primary purpose as a retirement safety net,” Wastell stated.
"The growing sentiment that Australians should be able to access their superannuation whenever needed underscores the increasing public debate about whether more flexibility should be allowed in utilizing superannuation funds.”
“This discussion is especially relevant for significant expenses, such as purchasing a home, given the rising property prices and the fact that 20% home loan deposits are now reaching six figures*.”
When examining how the 1 in 6 Australians who would access their superannuation early would spend the funds, preferences varied significantly by generation. Notably, a quarter of the ‘other’ responses indicated they would use the funds to cover debt repayments, including credit card, HECS, and household debt.
“Superannuation is intended for retirement, not for covering debts and living expenses, yet the data suggests that some Australians are hoping to use it for such purposes, which is concerning,” Wastell stressed.
Moreover, a staggering 28% of Australians with super funds who indicated they would withdraw super before retirement if allowed were unaware of their super balance and couldn’t estimate it to the nearest $10,000.
“The gap between Australians’ expectations regarding super withdrawals and their knowledge of their fund positions highlights a critical need for enhanced financial education concerning superannuation,” Wastell emphasized.
“Superannuation is a crucial component of your future savings, and if you’re not informed about your balance or how your super fund operates, you could be jeopardizing your retirement.”
“Regardless of your age, managing your super should not be left for ‘future you’ to handle. Understanding how to manage your super now is essential to ensure you’re preparing for the future.”
Mozo, Six-figure savings needed for a 20% home loan deposit, October 2023
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