When the Reserve Bank of Australia (RBA) announces a new interest rate cut, the public immediately shifts its attention to the Big Four to see if they’ll slash their rates too. While the RBA has decided to keep interest rates on hold this October (at a historic low of 1.5%), since November 2011, the RBA has slashed the cash rate 12 times without raising it (for a total of 3.25% worth of cuts).

While the Big Four has often passed on these full rate cuts, they never pass it on straight away—and as countless borrowers have discovered to their chagrin, each day the banks choose to delay adds to the financial charges of a mortgage.

Moreover, while the banks are always under heavy scrutiny around the time of the RBA’s announcement, few people pay attention when they raise rates at other times (the Big Four has done that at least twice in the past five years).   

There are four ways the Big Four’s decisions affect interest payments—and only one of them benefits those who’re borrowing. 

Raising interest rates out of cycle

While less attention is given to the Big Four’s interest rate decisions when the RBA isn’t making interest rate announcements, they are no less impactful.

In February 2012, even though the RBA had left the cash rate on hold, the Big Four raised their interest rates to varying degrees. ANZ raised its rates by the lowest amount at 0.6%, but raised them again by another 0.6% in April of that year.

In November 2015, all four banks raised their rates once again by much larger amounts. The cumulative additional interest paid on an average mortgage ($300,000) due to these rate spikes, excluding ancillary charges levied by the banks, totals more than $2,000 over five years.   

Delays when passing on RBA interest rate cuts

When loans are taken out from one of the big banks, the interest is calculated daily and charged monthly. Hence, every day one of the Big Four chooses to delay before cutting interest rates means borrowers end up paying more.

On average, the Big Four has waited just over 10 days to cut interest rates after each RBA cut. The tardiest offender since November 2011 has been Westpac, which waited an average of 13.5 days to cut rates in full or part after the RBA lowered the cash rate. This is followed by ANZ at 10.3 days, CBA at 10 days, and NAB at eight days.

On an average mortgage worth $300,000, these delays would have cost borrowers up to $338 extra. 

Passing on only part of the RBA’s cuts

The Big Four are notorious for sometimes failing to pass on the RBA’s full cut. Of the 12 announcements the RBA has made in the past five years, NAB failed to pass on the full interest rate cuts after seven of them.

CBA and Westpac failed to pass on the full interest rate cuts six times, while ANZ failed to pass on the full interest rate cuts five times.  

The impact of these decisions on the average mortgage can be more than $5,000 in additional interest payments. 

Passing on more than RBA cuts

Fortunately, the banks aren’t always focused on their best interests alone. On occasion, two banks have passed on more than the RBA’s full cut.

In August 2013 and February 2015, Westpac cut its standard variable interest rate by 0.28% when the RBA had only cut rates by 0.25% on each occasion. Meanwhile, in May 2013, ANZ cut its rate by 0.27%—which is 0.02% above the RBA’s cut of 0.25%.

You can use a Home Loan Repayment Calculator to check how your payments will be affected.

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