Commonwealth Bank, the biggest bank in Australia, made $5.15 billion in half a year.
The four big banks combined (Commonwealth, ANZ, NAB and Westpac) made $30.4 billion last year, up 8 per cent on the year before.
It’s no coincidence the banks are some of the most profitable companies in Australia – they prey on the fact that most of us don’t think about our interest rates day to day.
I wrote in my blog last week that the typical mortgage holder pays 0.5 per cent more interest on their home loan than a new customer is offered by their bank.
The difference between the cheaper and more expensive loan products out there is more likely 1 per cent per annum.
Add that up on the 2.2 trillion in home loans across Australia, and it comes out at an extra $10 to $20 billion per annum.
That’s a huge chunk of the profits being generated by our biggest banks!
When you consider the average Australian borrows $600,000 to buy their home, that works out to be a difference of $3,000 to $6,000 per annum for each household.
Given our home loan repayments are after tax dollars, we actually need to earn a third more than that just to make the interest repayments over and above what the bank charges new customers.
I’ll let that sink in; if we earn $4,000 from our employer, about $1,000 of that is paid to the government as ‘withholding tax’, so we only see $3,000 into our bank accounts.
That phone call to the bank for a better rate, or your broker to help you take your business elsewhere, is like getting a pay rise of $4,000!
As I wrote last week, interest rates will go up and down, and there’s nothing we can do about it. What we can control is the interest rate we pay, and the amount of interest we pay.
Offset savings accounts are another fantastic way to claw back some money from the banks. And totally within our control.
Most people’s savings account earns them an interest rate of 2 per cent per annum. By instead linking our savings accounts to our mortgages, it would save the average Australian 3 per cent per annum (again, in after tax dollars).
That’s just under another $2,000 per annum in after tax dollars saved.
Combine these two tips and it’s like getting a $6,000 pay rise, maybe even more depending on how much you owe the bank.
Australia’s biggest property owner is forecasting another boom in house prices when interest rates come down again. Now’s the time to get ourselves in the best position possible to seize that opportunity.
