Thread: Interest Rate Rises

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

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

Originally Posted by 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.

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.

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

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

Originally Posted by 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%.

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.

cheers, DL

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.

Originally Posted by 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%.

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.