They’re a little family of four. Let’s call them Mike, Greg, Peter and Bobby. Mr Editor, roll the tune ...
Here’s the story of some corporate “heros”
who were “fighting for survival” on their own.
They had to sack staff and raise int’rest rates ...
They were deeply disowned ...
It’s the story of some greedy bankers
Making 25 billion profit on their own
They were four banks, gouging all together
Yet claimed to act alone
Grasping every opportunity to “stay a-float”
They bunkered, fighting li’l Miss Muffet for her curds,
Claiming to act in Australians’ interests,
THEY’RE JUST A BUNCH OF ...
Seriously? Australia’s four main banks “independently” decide to hike rates, within a couple of working days of each other?
If their “funding pressures” were so catastrophic, why didn’t they go in January? Sure, they were hoping to be able to hide some or all of it under the shadow of a Reserve Bank interest rate cut. But they didn’t get that.
Instead, they all hid behind the ANZ, whose decision to have their own “interest rate meeting” was bold. Maybe even necessary.
Or not. Bank profits are up 50 per cent in the last five years. In 2006, the big four (plus St George, which got swallowed up by Westpac) made $16.2 billion. Last year, they declared $24 billion.
This week, without a hint of shame, CBA announced a monster half-year profit of $3.6 billion, up 19 per cent on the previous half year. And in the same breath say they are raising rates by 10 basis points.
ANZ went by 6 basis points, Westpac by 10 and the NAB by 9.
So, while you were sitting back, reading the paper and mumbling into a cuppa your current feelings about your bank, what were you thinking you would do about it?
Consider this – locking in your home loan rate. (Though it has nothing to do with squaring up with your bank. You do that by leaving them. This is about you.)
I’m not saying “do it”, or “you’d be crazy not to fix”. Over the long haul, variable rates will beat fixed most of the time.
But have you had a look at fixed interest rates recently? Jump on www.infochoice.com.au or www.cannex.com.au and have a look at what’s on offer, particularly from your bank. If your bank’s rate is good, you might not have to leave.
There are more than a dozen banks offering fixed rates for two and three years of less than 6 per cent. That’s probably between 0.4 and 1.3 per cent lower than your current variable rate now.
Fixed rates are like an insurance policy. You’re locking in a rate so that you know what your repayments will be. And some people would rather pay a little more, than risk their repayments going $100 a month higher.
Plus your situation is different to everyone else’s and it might not make sense for you. What I’m saying is you should investigate it.
Economists suggest there are some more RBA rate cuts on the way. But the experts, in general, tend to overestimate both how low and how high rates will go, when the cycle is happening.
Sadly, Australian consumers tend to panic and lock in at exactly the worst time. When rates are at their highest, and it’s hurting, that’s when we hit the “safety” button.
The last disaster when people flocked to fix was when rates peaked in early 2008. They were locking in three and five year rates above 8 per cent. Some of them are still suffering.
Why do we go the fixed rate route AFTER the horse has bolted? It’s like piling into the stock market at the peak.
We know the rule of making money! Buy low, sell high. It’s pretty simple. But way too many of us buy when prices are high, because we’re scared they’re going to go higher. Stupid!
Fixed rates could go lower from here, particularly if the Reserve Bank continues to cut rates in the coming months.
If you’d like the safety of fixed rates around where they are currently, consider fixing now, or at least keep an eye on them and be ready to act. There have certainly been worse times to fix.
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Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. email@example.com.