Australian banks and credit unions are paying up to 15 times the amount of interest on term deposits to government agencies, local councils and superannuation funds than what they shell out to retail customers.
Since the Reserve Bank began hiking interest rates in May, the spread between rates paid to personal depositors and so-called wholesale customers has widened to as much as 220 basis points (2.2 per cent) on three month term deposits and 330 basis points for six month terms.
Historically, the typical premium paid to wholesale depositors has been up to 50 basis points, but most banks today are unwilling to explain why the differential has blown out so dramatically this year.
Wholesale deposits generally attract a premium because they are easier for banks to originate and come in larger licks of up to $50 million.
However, deposit market experts say prevailing spreads above 150 basis points are indefensible.
Stephen Mickenbecker, a director of financial services comparison service, Canstar, believes the new trend in the deposits market is unusual and probably unsustainable.
“My general feel on this is that spreads of 150 basis points between wholesale and retail term rates are very high compared to historical levels,” he said.
“It’s a big spread.
“Household savers deserve a break and they haven’t had one since the global financial crisis hit them more than a decade ago.”
Banking Day has been shown tables of wholesale rates offered by a wide range of deposit takers.
The sensitive pricing information is rarely advertised by banks who would risk public embarrassment in periods when the interest premiums they pay wholesale customers balloon as they have this year.
The data shows that major banks such as the National Australia Bank have sweetened the rates they market to wholesale customers almost in lockstep with official rate rises while limiting the pass through to retail depositors.
It also shows that suppression of retail deposit rates is not restricted to the major banks, with a plethora of customer-owned banks also favouring large corporates, government agencies and super funds with rate offers materially above those paid to their longstanding members.
National Australia Bank on 17 October was marketing 90 day term deposits to retail customers at 1.5 per cent.
On the same day it was offering more than double that rate - 3.21 per cent - to super funds and government clients for a 90 day deposit.
As is the case with most banks, all of NAB’s retail deposit rates are priced at material discounts to rates offered to its more privileged wholesale clients.
For retail customers locking away cash for 180 days, NAB is only prepared to cough up 2.05 per cent, but wholesale customers get 3.56 per cent.
NAB’s premium for wholesale depositors narrows to slightly more than 0.5 per cent for cash locked away for a year.
A NAB spokesperson declined to answer specific questions from Banking Day about the blowout in spreads on term rates for retail and wholesale customers.
“The savings and deposits market is particularly competitive right now,” the spokesperson said.
“We regularly review our deposit rates and have made more than 30 moves since 1 May this year.”
“We recommend customers shop around and compare to get the best possible rate.”
Customer-owned banks such as Wollongong-based IMB Bank and the Perth-based P&N Bank consistently pay more interest to wholesale clients than their longstanding members.
While IMB pays a measly 1 per cent to its members for 90 day deposits, it forks out more than three times that rate – 3.22 per cent – for customers from the big end of town.
IMB hands large corporates more than double the interest it pays to retail members on 180 day deposits: 3.62 per cent versus 1.7 per cent.
P&N pays wholesale clients 4.18 per cent for a 12 month term deposit and its retail members get 3.65 per cent.
Peter Sheahan, the director of money markets at Curve Securities, said retail depositors had many reasons to feel disappointed about their current returns from banks.
“I don’t think any retail depositors can be really happy with what the banks are offering in the term deposits market,” he said.
“There is no strategic objective to sandbag an enormous quantity of term deposits from retail customers.
“Instead, the banks are targeting wholesale clients with more lucrative offers to win truckloads.”
Sheahan said the banks had created a Catch 22 scenario for customers.
“Retail customers should be thinking about terming out some of their at call deposits as compounding is a powerful contributor to balancing inflationary impacts, but they are not being shown the rates to incentivise them to do that.”
Bendigo’s egregious rates
Bendigo Bank and Bank of Queensland are also pricing their term deposits heavily in favour of wholesale clients.
While Bendigo pays its retail customers only 0.2 per cent for three month deposits, it splashes out 3.15 per cent to big super funds and corporates for the same term.
The spread is even fatter for wholesale customers prepared to park their money for six months.
They get 3.73 per cent compared to only 0.45 per cent for personal depositors.
“Bendigo and Adelaide Bank takes a range of factors into account when making pricing decisions including balancing the needs of shareholders, borrowers and savers,” a Bendigo spokesperson said.
“The bank endeavours to provide competitive interest rates on all our products including deposits and loans for all customers.”
Although BoQ is more generous to retail depositors, the bank is preserving healthy premiums for wholesale customers
BoQ pays retail customers 1.75 per cent for 90 day money and wholesale clients 3.14 per cent.
The spread is greater on BoQ’s six month term deposit which pays retail depositors 2 per cent and wholesale customers 3.77 per cent.
The blowout in the spreads between the customer segments across the banking industry yesterday drew a scornful response from Gerard Brody, chief executive of the Consumer Action Law Centre.
“"When banks increase their mortgage rates, but don't do so for deposit rates, consumers lose trust,” he said.
“We'd like to see banks competing robustly for saver's money, but often there isn't much choice unless you have tens of thousands of dollars.
“It tells us something about the level of competition in banking.”
The fact that plump wholesale pricing is boosting the coffers of government departments might partly explain the recent silence of federal treasurer Jim Chalmers on the failure of banks to improve retail rates.
As he puts the finishing touches on his mini budget, Chalmers would be acutely aware that his agencies are collecting a fatter return on money parked at local banks than millions of personal taxpayers.
So far, the treasurer’s few attempts at jawboning the banks to re-price their deposit products more equitably have proven ineffective.