Hike not good news for savers

Robert Laing

Robert Laing

The Reserve Bank's interest rate hike is supposed to be good news for savers.

But the savings rates banks pay don't seem to go up by as much or as quickly as their interest charges.

Spokesmen for the banks said that savings rates are complicated and there is no common yardstick. They vary according to the amount of money deposited, and the period of time the money is kept in the bank.

It takes R250 000 committed for a year, to get the banks to pay the 11 percent which the Reserve Bank now charges them.

Robert Keip, First National Bank's chief executive of savings and investments, said that the products linked to interest rates are adjusted immediately as new interest rates are applied.

Fixed deposit accounts earn interest based on the Reserve Bank's interest rates, but most savings accounts fluctuate with the money market.

The big four's account holders have to open a second savings account if they want to earn interest on their balances.

Besides costing more in bank fees, this complicates balancing accounts. You also run the risk of being charged overdraft penalties in your current account, which are higher than interest earned in the savings account.

Many banks pay less than their claimed interest rate because they deduct various fees. The banks don't have a yardstick savings rate, but they all quote their interest charges using "prime", which is now 14,5 percent.

Is the 3,5 percent difference between the prime and repo rate a government limit?

Brian Kahn, the Reserve Bank's head of monetary policy research, said it was just a convention. Commercial banks don't borrow much from the central bank at the repo rate, and they only use prime as a reference point.