Survey finds low interest rates aren't helping all Australians

The Reserve Bank has kept the cash rate at the record low of 0.10% for eight months now, but new research from Canstar suggests a majority of Australians aren’t benefitting from the low interest rate environment and may need rates to rise to boost their savings and quality of living.

A Canstar survey^ revealed 58% of Australian adult respondents believed low interest rates were not helping them in today’s market. The main three reasons for this view were that the effects of low savings rates had impacted their standard of living (18%), while 11% of people surveyed said low interest rates hadn’t helped them secure a loan from the bank and 10% said lower savings rates made it more difficult to save for financial goals.

While the Reserve Bank of Australia (RBA) continues to hold firm on its forecast for the country’s official cash rate to remain steady until 2024, having kept it on hold following its latest board meeting today, some of the major banks are forecasting higher rates sooner and it seems a large portion of Australians would support this move.

The Commonwealth Bank expects the cash rate to start going up in November next year and peak at 1.25% by September 2023, while Westpac is forecasting a rise of 0.15 percentage points in early 2023.

Canstar finance expert Steve Mickenbecker said many people tended to fixate on what the RBA cash rate means for home loan interest rates, but the majority of survey respondents feel low interest rates are not helping them.

“Low rates directly benefit borrowers, and only about one in every three Australians is repaying a home loan,” Mr Mickenbecker said. “Meanwhile, first home savers are receiving no interest rate help towards meeting their savings goal and retirees are living off reduced incomes.”

“Saving jobs through the stimulus of low interest rates benefits a broad spectrum of the community, but it is indirect, in particular for retirees living off bank interest.”

There are still savings rates up to 1.5% on Canstar’s database at the time of writing, and even as high as 3% for young adults, but Mr Mickenbecker said savers generally needed to look beyond the big brands they know to find them.

He also said borrowers who were currently benefitting from low loan rates needed to start preparing for higher rates, as signalled by some of the major banks on our database who have increased longer-term fixed home loan rates in the past three months.

“Interest rates look to be bottoming. Fixed rates for four- and five-year terms have been rising for the last couple of months and in June the number of lenders that increased their three-year fixed rates outnumbered those cutting. The worm is turning,” Mr Mickenbecker said.

“Borrowers can expect low short-term rates for a while to come, but will be faced with the decision to convert a fixed rate loan or not, and if so, when to do it and for how long.”

He said fixed-rate borrowers should hunt down a loan that allows extra repayments, or alternatively leave a portion of their borrowings in a flexible variable rate loan.

“Getting ahead on repayments is key while low rates last. This becomes much tougher when rates go up,” he said.

RBA Governor Philip Lowe is expected to make an irregular announcement today at 4pm AEST on the topic of the central bank’s strategy for economic recovery out of the pandemic, with analysts predicting changes to its quantitative easing (QE) measures.

Interest rate changes in June 2021

While the cash rate remains on hold, financial institutions have been making interest rate moves in June. Here’s a summary of the changes to home loans, savings and term deposit rates recorded in June on Canstar’s database:

Savings account changes

The highest savings rate is currently 1.50% (available for four months before reverting to 0.25%), or 3% for anyone aged 14 to 24 with up to $10,000 in the bank or 18 to 29 with up to $30,000 in the bank. Last month’s changes to savings accounts were the following:

• Two providers cut base savings account rates by 0.05 percentage points.
• Six providers cut bonus account rates by an average of 0.08 percentage points.
• Two providers cut promotional account rates by 0.05 percentage points.
• One provider increased its promotional savings account rate by 0.35 percentage points.

Term deposit changes

• 10 providers cut 60 term deposit rates by an average of 0.11 percentage points.
• Eight providers increased 22 term deposit rates by an average of 0.10 percentage points.

Home loan changes

Canstar now lists 195 interest rates below 2%, with 168 of these being fixed rates and 27 being variable rates. The rate changes last month were as follows:

• 20 lenders cut 50 variable home loan rates by an average of 0.27 percentage points.
• 16 lenders cut 144 fixed home loan rates by an average of 0.23 percentage points.
• 20 lenders increased 131 fixed rates by an average of 0.16 percentage points.

^Canstar survey of 903 Australians aged 18+. Survey conducted online in June 2021.