13. May, 2016

Banking & Finance

The two links below point to 2 different aspects of banking. Interest rates on deposits and interest rates on mortgages. These alone are the starting point for a National inquiry into banking. In my opinion and generally you can add the Reserve Bank becasue its reaction time to market adjustments is too slow. You can also add in the terms of reference APRA and ASIC the regulators who have failed at every serious challenge and point of need.

The banks are quick to add to the interest rate of your mortgage when rates climb and slow to discount when rates are in decline. The same applies in the case of deposit accounts... just in reverse.

I am able to comment in this area as I was a mortgage manager/lender for more than 20 years. There is a simple rule here if you have a mortgage. Have a redraw account or offset or line of credit into which you can place your savings. Generally the price of your mortgage will be higher than the interest in your savings account. Its not just that... you save years off your mortgage and many thousands if not tens of thousands of dollars off the principal and interest cost. Banks were extremely hesitant to give this advice even up to 5-7 year ago. The mortgage industry was 15-20 years in front and I am pleased to have been an initial advocate of this.

The banks were given a federal guarantee during the GFC so that they could continue without effect on their business. Effectively every Australian helped our banks through the GFC... how have they repayed that trust? Without proper and diligent regulation and being brought to account we will simply end up with more of the same.