Due to the expected rate cut by the Reserve Bank next week the major banks are vigorously reducing their interest rates on savings accounts.
Due to the pressure from government on the banks to pass on the interest rate cut in full, two of the major banks have taken dramatic steps to protect their funding margins by reducing deposit rates dramatically.
From Monday the NAB will slash their rate it pays on three month fixed term deposits from 4.2 per cent to 2.1 per cent. The NAB has decided to slash their rates after the Commonwealth Bank slashed their three month fixed term deposit rate from 4.2 per cent to 1.5 per cent. According to the latest market research conducted by Infochoice, CBA has also slashed its one year fixed rate offer from 3.5 per cent to 1.5 per cent.
Following recent comments by the chief executives of CBA and NAB that they may not pass on the full benefits of official rate cuts has led to dramatic repricings.
Ralph Noris chief of CBA has stated that his bank might not be able to pass on the full benefits of rate cuts to borrowers if the RBA lowers interest rates again, and that there had been some improvement at times, but that at the moment they were still seeing rates for international funding eight to ten times higher than at the start of the crisis.
However if the RBA were to cut rates next week and if the banks elected not to pass on the expected official cut they could find themselves in serious trouble.
ANZ and Westpac have also lowered short term fixed rates on their deposit products recently but their repricings have been more subdued. As part of overall programs to contain costs all the major banks are reviewing their rates on all deposit products.
So far this year all the big banks have slashed the rates they pay on internet saver accounts, which have become a key market segment through which to acquire customers.
These internet-only accounts, such as CBA's NetBank Saver and NAB's iSaver, were paying monthly interest of around 7 per cent towards the end of last year, but now only deliver a monthly return of 3 per cent to existing customers. ANZ is however still the price leader in this segment among the big banks by keeping its Online Saver rate at 4 per cent