When ‘cutting rates’ doesn’t mean what you think it means

Here’s a red hot question for the Big 4 banks: Why haven’t you passed on the cash rate cuts to variable rate home loan customers?
The post When ‘cutting rates’ doesn’t mean what you think it means appeared first on Motley Fool Australia. –

Yes, yes. Apparently there’s an election going on. In the UK, or UPS or something.

But enough people are already writing more than enough words on that.

Instead, let’s talk about what’s happening while many of us are distracted by politics:

As we all know by now, the RBA threw the kitchen sink at the economy on Tuesday, including cutting the official cash rate by 0.15% to 0.1%.

(It also did a lot of other things which were far more important, economically!)

The rate cut will be bad news for long-suffering savers, who’ll likely now get even less interest on their savings (if that’s possible).

At least borrowers will benefit, right?

Not so fast, Skippy.

But didn’t the headline say:

“CBA, NAB and Westpac slash interest on home loans to lowest in history after Reserve Bank cut”

Oh, it did.

Unfortunately that headline was one of the more misleading ones in recent history (and that’s saying something). 

Saying the Big Four banks – Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) – have cut rates is like Donald Trump saying he won the election.

True, in part, but more smoke than fire.

Yes, Trump won some states. So I guess that counts as a ‘win’. But it doesn’t tell the whole story, does it?

Thankfully, some headline writers looked a little deeper when it came to interest rates.

Here’s the ‘whole truth’:

“Commonwealth Bank the first big four to slash fixed rate costs, but leaves variable rates untouched”

It was joined by the other three of the Big Four banks in doing exactly that: cutting fixed rates, but leaving the variable rate where it was.

It could be described as a classic bait and switch.

“We’ve cut rates”, they yell from the rooftops.

Funnily enough, they then whisper the details so that only those who are contravening social distancing rules can hear.

Maybe it was inevitable, given we’re in the middle of election season, that they were going to use some of the same tactics as the pollies, but it’s both disingenuous and misleading.

To take a single example – and CBA is far from alone in this – their interest rate announcement is full of the spin they want reported. And many an overworked journo took the headline information of the announcement and reported it just as it was written.

Indeed, you have to scroll a fair way before CommBank asks and answers its own Dorothy Dixer:

“Why haven’t you passed on the cash rate cuts to variable rate home loan customers?

The cash rate reduction announcement by the RBA will lower the structure of interest rates and provide confidence that Australians can borrow over the long term at historically low rates.

We have reflected this in our interest rate settings, offering customers our lowest ever fixed rate – 1.99% fixed for 4 years – providing customers who fix some or all of their home loan with certainty and confidence into the future. We have also reduced the 1, 2 and 3-year fixed rates for new owner-occupier loans by up to 0.15% p.a.

Did you notice what was missing in that answer?

Yep… an actual answer!

There is not even an attempt to answer the ‘why’ at all. It’s Spin 101: “Answer the question you wish you were asked”.

I wish I was surprised, but I’m not.

And, as I said, CommBank is far from the only example – it was just the one that stuck out.

If anyone from CommBank is reading this, by the way, and wants to give me a straight answer, I’ll happily publish it. The same goes for ANZ, NAB and Westpac.

Perhaps the other thing going for the banks is that, frankly, no-one is surprised.

Where, you might ask, is the competition, when one bank can announce no change, and the other Big Four banks just meekly line up behind one another and parrot the same thing?

Yes, it’s partly a rhetorical question: there clearly is a massive lack of serious competition between our largest banks.

But it’s not completely rhetorical.

Let me give a wrap to two institutions I’ve seen advertise lower rates: ME Bank and Athena Home Loans. I have no affiliation with either, nor does The Motley Fool – I’m just mentioning them because they deserve a little free press for actually cutting rates.

I’m going to stop short of directly recommending them – I have no personal experience with either, and we also haven’t seen the dust settle on the rate cutting across the sector – but their actions should at least make them part of your consideration set when you’re looking to make sure you’re paying the best rate.

See, I have no inside knowledge of our Big Four, but I imagine the conversations they have about interest rates revolve around a single question: “How much can we charge before our customers start leaving?”

And, to be clear, that’s a perfectly rational and reasonable question.

The problem isn’t them – it’s you. And me.

I’m sorry if that’s hard to read.

But it’s true.

Because the answer, all too often, is: “A king’s ransom”.

Many Australians will donate something like $50,000 to their banks in unnecessarily high interest payments over the life of a loan.


50 gorillas.

Fifty big ones.


Because we’re lazy, overwhelmed, uninformed, or all of the above.

You’d drive across town to save a few cents a litre.

You buy what’s on special at the supermarket.

But you might be donating the price of a new car to your bank.

That is, unless you take action.

The choice is yours.

Either stick with your current bank, almost certainly paying more than you have to (there are hundreds of loan products out there: what are the odds that yours is the lowest rate on offer?), or take action.

Jump online.

Compare rates.

Then call your bank.

Ask them to match the best rate you can get.

If not, walk away.

Take your business elsewhere.

Too hard? Don’t want to?

Then I guess you must have more money than you need, or you really, really like your local bank manager!

In all seriousness, I get it. I don’t want to do it either.

But I also reckon that money is better in my pocket than theirs.

So do it to save money.

Do it to get out of debt quicker.

Or, if you’re so inclined, do it to stick it to your bank.

Whatever you do, don’t let apathy cost you a small fortune.

Do it.

Call your bank.


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The post When ‘cutting rates’ doesn’t mean what you think it means appeared first on Motley Fool Australia.

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