1 00:00:03,760 --> 00:00:06,440 Speaker 1: Welcome to Ask Fear and Greed, where we answer question 2 00:00:06,559 --> 00:00:09,959 Speaker 1: sent in by listeners. I'm Julian King and there's plenty 3 00:00:09,960 --> 00:00:11,560 Speaker 1: of ways to ask a question. You can do it 4 00:00:11,640 --> 00:00:15,160 Speaker 1: via LinkedIn, Instagram, ex TikTok or Facebook or visit our 5 00:00:15,200 --> 00:00:19,000 Speaker 1: website Fearangreed dot com dot au and Sewan. Today's question 6 00:00:19,040 --> 00:00:23,680 Speaker 1: is from Russell. He stumbled on the podcast Russell episode thirty, 7 00:00:23,800 --> 00:00:26,280 Speaker 1: which is about about four years ago that he writes, 8 00:00:26,640 --> 00:00:29,040 Speaker 1: I'd grown very tired of the major news outlets and 9 00:00:29,040 --> 00:00:31,280 Speaker 1: felt I couldn't rely on them to give a balance 10 00:00:31,320 --> 00:00:34,240 Speaker 1: to unbiased view alas the founder show, and have never 11 00:00:34,280 --> 00:00:37,760 Speaker 1: looked back. We love listeners like Russell. But anyway, on 12 00:00:37,800 --> 00:00:41,040 Speaker 1: to his question, he asked, who is benefiting from all 13 00:00:41,040 --> 00:00:44,680 Speaker 1: this extra cash that's been collected from mortgage holders? So 14 00:00:44,720 --> 00:00:47,320 Speaker 1: someone's benefiting from all this extra cash and I'm hoping 15 00:00:47,320 --> 00:00:50,239 Speaker 1: the Reserve Bank decision simply doesn't line the pockets of 16 00:00:50,400 --> 00:00:52,160 Speaker 1: the big banks. Sean. 17 00:00:53,000 --> 00:00:56,200 Speaker 2: Yeah, Well, Russell, I have some good news and some 18 00:00:56,280 --> 00:00:58,640 Speaker 2: bad news, and this one. The good news is that 19 00:00:58,720 --> 00:01:03,080 Speaker 2: people with are the biggest beneficiaries. Many of those are retirees, 20 00:01:03,120 --> 00:01:06,039 Speaker 2: so I don't really begrudge them. The bad is, at 21 00:01:06,160 --> 00:01:08,480 Speaker 2: least for us. All is that the banks are the 22 00:01:08,560 --> 00:01:11,400 Speaker 2: other big winners because they push up mortgage rates much 23 00:01:11,480 --> 00:01:14,520 Speaker 2: faster than they push up deposit rates. Look, let's jump 24 00:01:14,560 --> 00:01:16,720 Speaker 2: into a little bit more detail. According to the Reserve Bank, 25 00:01:16,760 --> 00:01:21,479 Speaker 2: about two thirds of banks funding comes from households and businesses. 26 00:01:21,720 --> 00:01:24,680 Speaker 2: Deposit accounts. We all have them. Might be the place 27 00:01:24,720 --> 00:01:26,840 Speaker 2: where your pay goes into, or an account you used 28 00:01:26,880 --> 00:01:30,039 Speaker 2: to say for a holiday. Maybe it's a business's transaction account. 29 00:01:30,319 --> 00:01:33,440 Speaker 2: The banks accept the deposits, then it on lends it 30 00:01:33,560 --> 00:01:37,360 Speaker 2: that money. The difference between what the banks pays depositors 31 00:01:37,880 --> 00:01:41,400 Speaker 2: and then receives on loans is called a net interest margin. 32 00:01:41,600 --> 00:01:46,680 Speaker 2: It's a proxy for the big four banks profit margins. Now, 33 00:01:47,319 --> 00:01:49,200 Speaker 2: if you think about interest rates, the Reserve Bank lifts 34 00:01:49,320 --> 00:01:51,360 Speaker 2: what's known as the cash rate. When it changes the 35 00:01:51,360 --> 00:01:54,560 Speaker 2: interest rates other rates like mortgages, credit cards, personal loans, 36 00:01:54,560 --> 00:01:58,120 Speaker 2: deposit rates, they broadly shift in line with what's happening 37 00:01:58,160 --> 00:02:01,040 Speaker 2: to the cash rate. The cash rate has gone from 38 00:02:01,120 --> 00:02:03,360 Speaker 2: zero point one percent to four point three to five 39 00:02:03,400 --> 00:02:06,640 Speaker 2: percent in the last twenty months. That's taken mortgage rates 40 00:02:06,640 --> 00:02:09,920 Speaker 2: from two or three points something to seven point something. 41 00:02:10,280 --> 00:02:12,560 Speaker 2: If you have a six hundred thousand dollars lane, you're 42 00:02:12,560 --> 00:02:15,680 Speaker 2: paying about sixteen hundred and fifty dollars more a month 43 00:02:15,720 --> 00:02:18,000 Speaker 2: as a result of the higher cash rates. So effectively, 44 00:02:18,000 --> 00:02:20,760 Speaker 2: what Russell's saying is who gets at extra one six 45 00:02:20,840 --> 00:02:24,840 Speaker 2: hundred and fifty dollars. Basically, people with deposit accounts get 46 00:02:24,880 --> 00:02:27,240 Speaker 2: the biggest chunk of it. Deposit rates are now up 47 00:02:27,320 --> 00:02:30,799 Speaker 2: to five percent, though transaction accounts are more like one 48 00:02:30,840 --> 00:02:34,640 Speaker 2: percent or less. When mortgage rates were two points something, 49 00:02:34,919 --> 00:02:38,160 Speaker 2: most deposited accounts were pretty much nothing, but now they're 50 00:02:38,200 --> 00:02:40,840 Speaker 2: five percent, so people with a deposit account they're taking 51 00:02:40,880 --> 00:02:43,800 Speaker 2: that money. Of course, the banks don't always lift deposit 52 00:02:43,880 --> 00:02:46,440 Speaker 2: rates by as much as they lift mortgage rates, or 53 00:02:46,440 --> 00:02:49,800 Speaker 2: they're much slower to shift on deposit rates, so some 54 00:02:49,919 --> 00:02:52,320 Speaker 2: of that extra sixteen to fifty dollars ends up as 55 00:02:52,360 --> 00:02:55,360 Speaker 2: part of the bank's profits. That's why rising interest rate 56 00:02:55,440 --> 00:03:00,600 Speaker 2: environments are good for the bank's bottom line. So the 57 00:03:00,680 --> 00:03:03,400 Speaker 2: answer to your question about who's benefiting from higher mortgage 58 00:03:03,520 --> 00:03:07,399 Speaker 2: rates is depositors mostly. But say to the banks, good 59 00:03:07,440 --> 00:03:08,320 Speaker 2: on you, thank you, Sean. 60 00:03:08,400 --> 00:03:10,280 Speaker 1: That is ask for and greed, And if you have 61 00:03:10,320 --> 00:03:13,240 Speaker 1: a question, just get in touch via LinkedIn, Instagram, ex 62 00:03:13,280 --> 00:03:16,360 Speaker 1: TikTok and Facebook, or just jump on the website fearangreed 63 00:03:16,400 --> 00:03:18,400 Speaker 1: dot com dot au. We'd love to hear from you. 64 00:03:18,840 --> 00:03:19,720 Speaker 1: I'm Julian King.