Interest Rate Rises

[chuck]

Can someone tell me where the money goes??

The bank takes the extra money from you - so whatever that works out to every month.

Supposedly they then pay additional interest on deposits - but these rates never seem to match i.e. if the interest rate for mortgages goes up .5% deposit interest rates dont seem to go up by the same .5%.

Also - pretty sure is mortgage pool is bigger than savings pool - so where does the money go, and why??

Wrote to the Reserve Bank Governor & Treasurer today to ask the same question - not expecting a reply.

[Bulletman]

I cant tell you where the money goes, but the banks are a business, so they want to make money and if they borrow money at 1% why would they pay you to deposit money with them for any more than .5 % as like most I assume their business plan works on a 100%
Mark up. They want people to borrow and take the longest time to repay the debt.
They are no different to fuel companies, why is the terminal gate price say $1.60 but the pump price is $1.99.
Sadly majority of people need the banks so they will continue to make crazy profits on the backs of the people struggling to keep a roof over their heads and try and enjoy life.
Cheers Bulletman

[3toes]

The short version. Banks raise most of the funds they lend out on the money market as not enough people save.

If you limited banks to only lending out savings that would significantly reduce the funds available for loans. Think the regulatory controls that were in place in bank lending years ago. That is why when the markets froze a few years ago no one could get a loan from the bank.

Also banks pay more when they borrow from markets than they pay savers so this has to be factored in as well

[NavyDiver]

Can someone tell me where the money goes??

The bank takes the extra money from you - so whatever that works out to every month.

Supposedly they then pay additional interest on deposits - but these rates never seem to match i.e. if the interest rate for mortgages goes up .5% deposit interest rates dont seem to go up by the same .5%.

Also - pretty sure is mortgage pool is bigger than savings pool - so where does the money go, and why??

Wrote to the Reserve Bank Governor & Treasurer today to ask the same question - not expecting a reply.

Cost of money is not really a science. Just math. Money flows are hugely influenced by several factors. IF money flows out of a country like occurred in several. Not meaning to pick on Zimbabwe or Sri lanka but easy targets as an example of what NOT to do.

Effective Laws or not
Effective financial systems
Stable exchange rates
Significant volumes of exchange enabling trillions of $$$++to flow in or out quickly.
Lower levels of corruption- Not suggesting any where has no corruption sadly!

Banks are factoring business. Borrowing and Lending cash for profits. Higher interest rates for the banks is always passed on to us quickly. The same is not as true for Interest rate reductions which are often passed on slowly and may not be passed on in full.

The margins they want are only really restricted by how much you can bare and the competition allows them to take from us.

https://qph.cf2.quoracdn.net/main-qimg-120c9a23395d0340c5e6dbc1fd8cdef1-lq

[discomatt69]

What gets me is how fast and how much they pass on to loans yet when it comes to term deposits it is always the opposite.
Actually that is not what gets me, that is to be expected because banks are run by greed.
What gets me is how the population put up with it and government does nothing about it, that is what really gets me:bat:

[scarry]

Lots of complaining about a minimal increase in interest rates,yet when we bought our first place,they were around the 18 to 21%.[bigwhistle]

[350RRC]

Lots of complaining about a minimal increase in interest rates,yet when we bought our first place,they were around the 18 to 21%.[bigwhistle]

I can remember paying 23% on a business overdraft ................ was only $9k.

It's really a pity that the gov can't balance the printing of money with actual demand. [biggrin]

cheers, DL

[JDNSW]

The basic problem is that money is worth what the majority think it is worth - and this is influenced by all sorts of factors that are beyond the control of the government, banks,or anyone else.

Banks need a margin between what they pay for money and what they lend it at, As well as paying for the money they borrow, and paying dividends, there are a number of other costs - staff, cost of premises (either owned or rented), IT services and software, banking licence, compliance, reserves (money they need to hold under terms of their licence), staff training, losses due to bad loans, not to mention legal expenses and fines.

Of course,we could allow unfettered competition in the banking sector, and this has been tried. But the results always seem to show that something like the present system works better.

Repeatedly through our history, states and the Commonwealth have established government banks. These have rarely been able to perform better than the private banks as far as the customer is concerned, and have proved to demand money for capital that governments have usually decided is better spent elsewhere.

[Arapiles]

Lots of complaining about a minimal increase in interest rates,yet when we bought our first place,they were around the 18 to 21%.[bigwhistle]

Problem is that if you've borrowed at 1% an increase to 2% doubles your interest repayments. Whereas, at 18% interest rates would've had to go to 36% to have the same effect.

Apparently the banks stress-tested people's borrowings at 4.5%, but I don't know what APRA or the banks consider to be bearable.

[Arapiles]

What gets me is how fast and how much they pass on to loans yet when it comes to term deposits it is always the opposite.
Actually that is not what gets me, that is to be expected because banks are run by greed.
What gets me is how the population put up with it and government does nothing about it, that is what really gets me:bat:

Banks are run by greed .... you mean, unlike any other business in this country?

[Arapiles]

Can someone tell me where the money goes??

The bank takes the extra money from you - so whatever that works out to every month.

Supposedly they then pay additional interest on deposits - but these rates never seem to match i.e. if the interest rate for mortgages goes up .5% deposit interest rates dont seem to go up by the same .5%.

Also - pretty sure is mortgage pool is bigger than savings pool - so where does the money go, and why??

Wrote to the Reserve Bank Governor & Treasurer today to ask the same question - not expecting a reply.

It's the other way around - when the RBA raises interest rates the banks' costs increase and that's what they pass on to borrowers. The RBA has a paper on their website that explains how increases in the base rate flow throught the banking system and the economy.

[chuck]

The Savings Pool is in the hundreds of Billions but the Mortgage Pool is in the Trillions.

So they are not passing on they same as they are collecting.

Even if they are paying more for money, they are paying less than they are paying out - so effectively the Reserve Bank is contributing to inflation as housing will now cost more.

Respected economists are now saying they got it wrong as Australians are paying more for essentials i.e. food & fuel thru no fault of their own, wage rises are not driving inflation.

[scarry]

Problem is that if you've borrowed at 1% an increase to 2% doubles your interest repayments. Whereas, at 18% interest rates would've had to go to 36% to have the same effect..

I doubt that is correct.

[JDNSW]

The Savings Pool is in the hundreds of Billions but the Mortgage Pool is in the Trillions.

So they are not passing on they same as they are collecting.

Even if they are paying more for money, they are paying less than they are paying out - so effectively the Reserve Bank is contributing to inflation as housing will now cost more.

Respected economists are now saying they got it wrong as Australians are paying more for essentials i.e. food & fuel thru no fault of their own, wage rises are not driving inflation.

It doesn't work like that. Yes, the increase in interest rates increases the cost of housing in the short term - but puts a major brake on the rising price of houses, which in the medium and long term is the principal factor in increasing housing costs. At least in theory, house prices will reduce to keep the repayments about the same (for new buyers). But in the short term it reduces inflation as more money is used for house repayments, demand for everything else is reduced, simply because if you are paying more on your mortgage, you have less money to spend on coffee, the latest iPhone, that overseas holiday, house renovations, new car etc, which places constraints on the purveyors of these increasing their prices.

[scarry]

It doesn't work like that. Yes, the increase in interest rates increases the cost of housing in the short term - but puts a major break on the rising price of houses

FWIW,without getting political, IMHO,this should have been done months or even years ago.

It isnt something that has just occurred,house and land prices been out of control for probably a couple of years,now.

Sure Covid came along as well,and threw a curved ball at everything.

[JDNSW]

The problem with house prices is not only low interest rates. There are a whole range of reasons for house prices getting ridiculous.

And it is not a new issue. I can remember when my father was horrified at the price his sister had to pay for a block of land in Sydney - I think it was about $8,000. And pointed out that he had bought his seven acres (now an industrial area) for a thousand pounds, including a house, sheds, and working poultry farm (in 1939). It was sold for 20,000 pounds in 1959, and would probably be worth at least $12-15million today.

[BreakingBad]

Watched an interesting clip on YT the other week.

I think it was this one. It's long but rather informative. 97% OWNED | FREE FULL DOCUMENTARY | Financial Power, Money Manipulation - YouTube (https://www.youtube.com/watch?v=npXbFUAFtYk)

To paraphrase one of the statements - when a bank loans money, either as a mortgage or via a credit card, they are effectively 'printing new money'.

[Discosux]

Watched an interesting clip on YT the other week.

I think it was this one. It's long but rather informative. 97% OWNED | FREE FULL DOCUMENTARY | Financial Power, Money Manipulation - YouTube (https://www.youtube.com/watch?v=npXbFUAFtYk)

To paraphrase one of the statements - when a bank loans money, either as a mortgage or via a credit card, they are effectively 'printing new money'.

Well the government is at least.

Thank christ we didn't have wage growth to go along with it. (asset holders / early buyers would not have realised such high gains otherwise)