Real reason savings rate won’t rise

The Reserve Bank has already warned Australians that more interest rate hikes could be on the horizon as the struggle continues to return inflation levels to the target range of 2-3 per cent.

The nation’s cash rate was hiked to 3.35 per cent earlier this week.

Financial expert Richard Whitten explained the reason higher interest rates on savings accounts weren’t being passed on was because banks were balancing a range of interest rates on different type of products.

“Any Australian saver or borrower is playing against the casino to some degree. The house always wins,” Mr Whitten, the money editor of financial comparison website Finder, told NCA NewsWire.

“The bank will always find a way to make money whether rates are rising or falling.”

Mr Whitten explained most lenders, including the four big banks, had passed on each successive cash rate rise to borrowers in full over the past year.

But interest rates on savings accounts hadn’t risen by that much in the same space of time.

“Should Australians feel ripped off? It‘s hard to say,” Mr Whitten said.

“When the cash rate rises, the bank’s costs to access money increases, which they pass on to borrowers.

“Banks also fund loans from other sources and are affected by the supply of money available.”

He explained banks were subject to different factors, including their operating costs, profit calculations and funding costs depending on how they access the money needed to fund home loans.

Smaller online lenders were able to charge lower interest rates because they didn’t have the expenses of running branch locations all over the country, Mr Whitten said.

Each bank also had different risk calculations on lending – accounting for any different rates that could be charged.

“Banks may assess risk differently or have different levels of exposure,” Mr Whitten said.

“For example, if a bank has a really high number of residential investment mortgages on its books, then it may decide to set investor rates slightly higher.”