Deposit Rates vs Loan Rates: The Lag

Key takeaways

• Loan repricing is usually fast and near-full; deposit repricing is slower and selective.
• Increases often go to headline or conditional accounts rather than to all savers.
• Bonus-rate conditions mean advertised rates are frequently not what savers earn.
• Both sides of the lag are worth acting on - ask for a reprice, and move your savings.

Why does the lag exist?

Because lending and deposits are different competitive markets. A variable home loan rate is contractually adjustable and highly visible, and every competitor moves at once, so a lender that does not pass on an increase simply earns less on the same book.

Deposits work differently. Savers are less rate-sensitive and slower to move than borrowers, and a large share of deposits sit in transaction accounts that pay little regardless. A bank can therefore raise deposit rates selectively - on a new-customer introductory rate, or a bonus-conditional saver - rather than across the board.

The ACCC's inquiry into retail deposit products examined exactly this, finding that deposit pricing is complex, conditional and difficult for consumers to compare, which reduces the competitive pressure that would otherwise close the gap.

Where does the money actually go?

The conditional accounts are where the asymmetry hides. An advertised rate that requires a minimum monthly deposit, a minimum number of card transactions and no withdrawals is a high rate that a meaningful share of holders will not actually receive in any given month.

What can you do about it?

Both halves of the lag are actionable, and most people act on neither.

• On the loan side, ask for a reprice. Existing borrowers frequently pay materially more than the same lender's advertised new-customer rate, and a phone call citing a competitor's rate is the cheapest financial action available to most households.
• On the deposit side, check what rate you are actually receiving, not the advertised rate. Then check whether the bonus conditions are being met each month.
• Consider an offset instead. For a borrower, money in an offset account effectively earns your loan rate, tax-free, which almost always beats a savings account taxed at your marginal rate.

That last point is the one that matters most for anyone with a mortgage. Chasing a savings rate while carrying a home loan at a higher rate is usually the wrong optimisation.

Frequently asked questions

Why do banks raise loan rates faster than deposit rates?

Lending is a more competitive and visible market where every lender moves together, while deposit customers are slower to switch and much of the deposit base sits in accounts paying little regardless. Selective deposit increases protect margin.

Is the lag legal?

Yes. Banks set deposit and lending rates commercially. The ACCC has examined retail deposit pricing and highlighted complexity and conditionality as barriers to effective competition, but the pricing itself is a commercial decision.

Should I keep savings in an offset instead of a savings account?

If you have a mortgage, an offset generally wins, because the benefit equals your loan rate and is not taxable, whereas savings interest is taxed at your marginal rate. Compare after tax, not headline rates.

How do I know if I am getting the bonus rate?

Check your statement for the interest actually credited, not the advertised rate. Conditional accounts commonly require minimum deposits, a set number of transactions and no withdrawals in the month.

Related reading

• Net Interest Margin Explained
• Offset Account vs Redraw: The Real Difference
• Digital-Only Lenders: Speed vs Flexibility

Sources

• Retail deposits inquiry — ACCC
• Moneysmart - savings accounts — ASIC