Trending Financial News 15 July

The deeming rate cut explained

Pros and cons of the deeming rate cuts

Centrelink’s deeming rate has been cut, after two recent RBA rate cuts and weeks of public debate, by 0.75 percentage points, from 1.75 per cent to 1.0 per cent for savings and investments up $51,200 (for single pensioners) and $86,200 (for couples). Over those thresholds the deeming rate has been cut from 3.25 per cent to 3.0 per cent.

Deeming rate cut – the pros

630,000 age pensioners and 350,000 other people receiving pension payments, such as disabled people and single parents will benefit.

The Minister for Families and Social Services Anne Rushton said the deeming rate cut means “more money in the pockets of older Australians.”

“Pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples – an extra $1053 a year,” said the minister, and $31 a fortnight for singles.”

Deeming rate cut – the cons

Ian Henschke from National Seniors Australia said the new deeming rates remain well above the rate pensioners can earn on bank accounts.

“What the government is telling pensioners is that they are earning 3 per cent on their investments, when most term deposits are not even returning 2 per cent.

“How is that fair?”

Homeowners will also miss out on the full benefit of the deeming rate cuts and three quarters of aged pensioners will get nothing from the changes because they don’t have investments in super, shares or bank deposits.

Only pensioners who do not own a family home qualify for the maximum benefit from the rate cuts of $804 or $30 a fortnight because homeowners have lower assets test thresholds.

Which accounts pay more than the deeming rate?

Centrelink’s deeming rate has been cut by 0.75 percentage points from 1.75 per cent to 1.0 per cent up to $51,200 for singles and $86,200 for couples. The higher deeming rate has been cut from 3.25 per cent to 3.0 per cent.

“It is possible and not too difficult to find good term deposits paying more than 1.0 per cent so this is a big win for a lot of retirees,” said Vadim Taube, CEO of InfoChoice.

“The top 12-month term deposits are now paying 2.50 per cent with plenty of banks offering rates over 2.0 per cent.”

The top 12 month term deposit rates currently listed by InfoChoice are 2.50 per cent from Qudos Bank, BankFirst’s 2.40 per cent from a Regular Income term deposit and First Choice Credit Union’s 2.25 per cent.

“It’s important to shop around and get rates that are close to or over the deeming rate if possible because pension payments are reduced based on the deeming rate,” said Vadim Taube.

Popular online bank UBank has 12-month term deposits currently paying 2.15 per cent.

The top savings account rates are also still over 2.0 per cent said Vadim.

UBank’s USaver Ultra has a base rate of 1.54 per cent and a bonus rate of 1.06 per cent making a total maximum rate of 2.60 per cent. RAMS Saver account is paying a maximum rate of 2.55 per cent.

More home loan rate cuts from smaller lenders

Bank of Sydney will reduce variable home loan rates by 0.19 percentage points points from 23 July to 3.11 per cent p.a. for LVRs up to 90 per cent. Bank of Sydney’s  Owner Occupied Expect More Home Loan rate will come down to 3.27 per cent pa.

Bank of Sydney’s Steve Sampson said Bank of Sydney is a market leader in home loan interest rates “and we intend to keep that position.”

Heritage Bank is cutting home loan rates by 0.15 percentage points, taking its lowest variable rate to 3.42 per cent from Thursday (18 July). Heritage is cutting fixed rate home loans by up to 0.30 percentage points.

Pepper Money is cutting variable interest rates for existing customers by 0.20 percentage points from 22 July.

ANZ and NAB cut savings rates

ANZ has cut its Progress Saver account rate by 0.25 percentage points and Online Saver account by 0.15 percentage points.

NAB has reduced savings account rates by 0.19 percentage points. NAB’s Mike Baird, said: “Decisions like these are difficult and reflect the current unique circumstances, with home loan rates at record lows at the same time as deposit and savings rates also being at record lows.”

Auction results at a glance.

The powerful Council of Financial Regulators, chaired by the Reserve Bank governor, says house prices in Sydney and Melbourne are stabilising.

However, “conditions in most other capital cities continue to be soft,” said the council’s last update.

Auction clearance rates continue to indicate a strengthening property market in Australian capital cities. Overall 68.99 per cent of residential property auctions held in Australia on the weekend of the 13 and 14 July produced a sale according to CoreLogic.

In Sydney, 283 auctions produced an auction clearance rate of 74 per cent, according to Domain, up from 43 per cent on the same weekend in 2018. There were 319 auctions held in Melbourne with a reported clearance of 69 per cent, up from 51 per cent last year.

In Brisbane, 51 auctions produced a clearance rate of 34 per cent (37% in 2018). In Adelaide, 43 auctions reported a clearance rate of 63 per cent, up from 56 per cent last year.