Smart Moves!- Bank Moves?

March 20, 2020

CBA is looking after small business, the guys that are going to hurt the most collectively.

Hello readers

It is not often that you will hear me praise a bank; however, I must give credit where credit is due. The unlikely hero of our story today is the Commonwealth Bank Australia (CBA), which is under fire for not passing on the 0.25 per cent rate cut by the Reserve Bank Australia (RBA). 

Now, I am the first to criticise where criticism is due. Right now it is directed at mainstream media for feeding into hysteria. There is enough fear and confusion in the world right now without throwing more fuel onto the fire.

Let me breakdown for you what actually happened in simple terms.

The RBA cut the cash rate by 25 basis points (bps), bring our current cash rate to 0.75 per cent (not going to lie, that is not great, but I will talk about that in a future post). Their intention was for the banks to pass this full discount onto the market.

CBA, our unlikely hero, was the first of the major banks to make a move into the market with their rate changes. To my immense surprise, our hero has made some incredibly insightful and well-intended changes to their rates:

  • help for small business vendors that find themselves having to shut their doors: a 100 bps interest rate reduction for all existing cash-linked small business loans;
  • help for mums and dads at home who have cash funds in the bank: a 60 bps increase in 12-month term deposits to 1.70 per cent per annum; and
  • help for people with the highest monthly payment mortgage loans: a 70 bps interest rate reduction in one-, two- and three-year fixed home loan rates for owner-occupiers paying principal and interest to 2.29 per cent per annum, and changes to home loan repayments resulting in a release of up to $3.6 billion in cash for Australian households.

This is amazing news for the economy. CBA is looking after small business, the guys that are going to hurt the most collectively.

The protagonist of our story, mainstream media, has focussed on the fact that CBA has not cut their variable home loan rate. Yes, I agree it was dastardly of our hero to have not passed on the last few rate cuts to the people, but today, the foresight of CBA is welcomed and well received by this observer, particularly in their assistance for those making the highest monthly out-of-pocket payments.

So, what is your takeaway from this?

Firstly friends, be careful what you are reading. There is always a bit of a twist in the media towards whatever sells and sensationalised stories. In today's climate, where people are already scared, make sure you take a breath and do some research or phone a friend to talk it through if you are concerned about something. Or you can always give me a call too 😊 

Secondly, with a big player like CBA making moves to shore up small business and helping protect the customers who are paying the most out of pocket, this should say to you that it is time to shore up your at-home expenses. Use this opportunity to take advantage of historically low fixed rate loans. It is not a bad idea to be fixing your home loans for the next two years so you know what your fixed expenses will be.

Thirdly, keep tuning in for my incredibly insightful and modestly-pitched articles and videos 😉

Take care gang. Be mindful, be careful and look out for your neighbours.

Shaun Fox