Big four banks hold out on interest rate cut

While no major bank has yet cut interest rates outside official rate cut timings, three smaller players, BMC Mortgage, Holiday Coast Credit Union and IMB have.

It was a slither of a cut from BMC Mortgage - just 0.1% across some of its variable rates. Holiday Coast cut some variable rates by 0.2% and IMB by 0.05% on its Essentials Home Loan.

Commonwealth Bank's record half-year cash profit of $3.78 billion - up 1% - will certainly make it harder for the majors to continue to cite funding costs as a reason why they can't pass on all the Reserve Bank rate cuts.

And Ian Narev, the chief executive of the Commonwealth, has even gone on record hinting that rate cuts outside official Reserve Bank movements is "plausible over time".

But while strong deposit growth during the period has meant the bank satisfied significant funding needs from high-quality retail customer deposits, the Commonwealth claims competition for deposits is still intense.

So until deposit rates fall and the lagged effect of cheaper funding replaces the older, more expensive funding, it's unlikely we will see the big four cut rates outside any official rate cuts.

Morningstar's banking analyst, David Ellis, says an out-of-cycle lending rate cut won't be likely until at least the second half of the year or the start of 2014.

Michelle Hutchison, of RateCity, says some deposit accounts have already fallen, so consumers need to keep a close eye on their returns.

"CUA, for example, cut its eSaver account by 280 basis points to 3.5% - compared to the Reserve Bank's 175 basis point cuts since November 2011."

For online savers there has been a substantial shake-up of the institutions with the top rates.

According to RateCity's data, the usual headline leaders such as UBank, RaboDirect and RAMS aren't at the top of the leader board.

"The average online savings account rate is 3.5% while the highest rate is 5.1% by ME Bank. That 1.6% difference could mean an extra $166 in interest after one year on a balance of $10,000."

To be fair, though, ME Bank's rate includes a 1.6% bonus rate for 12 months, after which it reverts to a standard base rate, currently 3.5%. The best-paying ongoing standard online rate is RAMS Saver's at 4.82%.

"Savers need to compare conditions which may limit potential interest earned," says Hutchison.

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