Big banks take price leadership in deposit market

The two cuts in the cash rate, in November and December, have caused a change in the competitive dynamics of the deposit market. Before the Reserve Bank of Australia made its rate cuts, the pace-setters in the high-interest savings account market were foreign banks and mutuals. Now the big banks feature among the price leaders.

Back in September, a snapshot of the Infochoice deposit database shows that Virgin Money and UBank (a NAB brand) were the market leaders, with introductory or bonus rates of 6.51 per cent. RaboDirect and Citibank had introductory rates of 6.5 per cent, Hunter United was offering 6.31 per cent, and CUA and Bankwest had introductory rates of 6.3 per cent.

Now the Infochoice data shows that while UBank is still market leader, with a bonus rate of 6.11 per cent, the pace-setters are Bank of Queensland, with an introductory rate of 6.1 per cent; ANZ, whose Online Saver has an introductory rate of six per cent; and Bank of Melbourne, whose Maxi Saver has an introductory rate of six per cent.

The big banks did not pass on the full 50 basis point cut of November and December. UBank responded with a 40 basis point cut to the USaver rate, while ANZ reduced the introductory rate on its Online Saver account by a total of 25 basis points.

Other deposit-takers made bigger rate cuts. Virgin Money cut by a total of 66 basis points and Citibank by 70 basis points. RaboDirect cut its Premium Saver rate by a total of 90 basis points.

Different approaches being taken by different financial institutions can be explained by the big increase in the cost of wholesale funds. Big banks could be targeting the retail deposit market as a more cost-effective source of funds.