BTN: Bank loans

NATHAN BAZLEY:

Let's look at banks because some people seem to be really angry at them lately. It's complicated, but it all started after one bank decided to charge people more money on their loans. They charged more than the Reserve Bank recommended when they set the base interest rate. It's all left some people saying the banks are too greedy. But others would be angry if banks weren't trying to make bigger profits. Why? Because a bank is really just a business and business means business.

MAN:

Here you are, boys. Thanks.

COWBOY:

Thank you, Mr Brand. MAN 2: Not bad for a season's work.

NATHAN BAZLEY:

Back in the day, putting your money in the bank was as much about trying to keep it safe as anything else. But these days, banks play a much bigger role in society. A lot of money goes into them and a lot of money comes out of them. But just how much goes in and stays in is causing some controversy at the moment. The story all starts with houses. Say your family wanted a new one. The average house costs around 350,000 bucks, which you'd agree, is a massive amount of money. Most people don't have that money just sitting round. So that's when they go down to the bank for a loan. Down at the bank, if you can prove you'll be able to pay it back they will lend you the money to buy. But they don't just give it to you for free. Banks are a business that need to make money, so they charge you money to lend you money. How much are we talking? Well, on that $350,000 house we were talking about earlier, by the time you've paid it off, the total could come to around $869,000 — more than double the original cost. The money they charge is called 'interest' and it's worked out through an interest rate. The banks are given advice on when they should raise and lower the interest rate by the Reserve Bank of Australia. It sets the base rate. But the catch is, banks can set their rate to whatever they like. If they want to raise it higher they can and their customers have to pay. That's exactly what the Commonwealth Bank did. They raised their rate by 0.45 of a percent, which doesn't sound like much, but for that house loan we were talking about, it would mean an extra $39,000 all up. Some other banks raised their rates, as well. And guess what their customers thought of that?

MAN:

I think it sucks, actually.

MAN 2:

I am very angry. It's just disgusting the way they've done it all.

NATHAN BAZLEY:

One of the main reasons people are angry is that most of the banks are making record profits, while some of their customers are struggling. A few days after the Commonwealth put up their rates, another bank, Westpac, announced it made $6.3 billion this year. The question many customers ask is if they are making so much cash, why do they need to charge us so much more? The answer is pretty simple. Banks are public businesses, so their whole job is to make money for their shareholders. Right now, the banks say they are paying a bit more to source cash from overseas. So they will pass on those costs to make sure they continue making big profits. But understanding that doesn't make it any easier for families struggling to keep up with their repayments. So the government is hoping to help, by making it easier for bank customers to shop around for a better deal. So if your bank's feeling more like highway robbery, maybe it's time to ride on over to another.