Banks are creaming off millions of rands using volatile interest rates to manipulate what you pay and are paid by banks when you borrow or invest money.
This is the finding of a Personal Finance survey on borrowing and lending rates.
The survey compared the prime lending rate with the 12-month fixed deposit rate for new accounts and the interest rates you get on money you keep in your credit card with what you pay in interest on a debit balance in your credit card.
The prime rate is offered by banks to their best customers, usually companies. Most consumers would pay prime plus one, two or three percent on overdrafts.
The survey shows three ways that banks take advantage of you:
* The banks are quicker to put up lending rates than deposit rates;
* Savings rates often do not move up as much as lending rates, meaning the gap between lending and borrowing rates widens; and
* Banks put up the rates that you pay when you borrow money more often than they put up the rates they pay on savings accounts;
When the prime rate peaked at 25,5 percent in August last year, the interest rate to savers lagged behind. The extent to which it lagged varied from bank to bank.
From June to August last year, Absa Bank, First National Bank (FNB), Permanent Bank, Nedbank, NBS Bank and Standard Bank increased their prime rate by a total of 5,25 percentage points, but savers only got an increase of two percentage points at Absa, 2,25 percentage points at FNB, 3,15 percentage points at NBS Bank and two percentage points at Standard Bank.
The banks in the Nedcor stable were less miserly to savers. Permanent Bank increased its savings rates by four percentage points on its 12-month fixed deposit accounts and Nedbank by 3,50 percentage points, but this still lagged behind the 5,25 percentage point increase that borrowers had to bear.
When lending rates started dropping in October last year, some banks decreased interest rates to savers more quickly than they lowered the rate to borrowers.
It took Absa 147 days to cut its prime lending rate while savings rates were lowered in 120 days and FNB took 140 days to lower its prime rate and 119 days to lower its savings rate.
Other banks surveyed - NBS Bank, Permanent Bank, Nedbank and Standard Bank - lowered these two interest rates simultaneously or within a day or two of each other.
When it comes to credit cards, the banks surveyed were sitting pretty on fat margins.
Personal Finance compared the interest that the bank pays you, with the interest that you have to pay on outstanding balances on an ordinary credit card.
At Absa Bank the gap between what you pay in interest on your credit card and what you receive in interest widened from 15 percentage points in June 1998 to 18 percentage points in October 1998. Currently the gap is 16,5 percentage points.
At FNB the margin increased from 16,5 percentage points to 18 percentage points and has now narrowed to 17 percentage points.
Permanent Bank and Nedbank started off with a gap of 17 percentage points, increased it to 19,5 percentage points and you are now having to live with an 18 percentage point difference.
At Standard Bank the gap was 20,25 percentage points in June last year. It widened to 23,25 percentage points in August and is now 25 percentage points. The rates used for credit balances at Standard Bank in this calculation are for amounts between R5 000 and R10 000. The higher the balance in your credit card, the more interest you earn.
Eric Tomlinson, deputy operating officer at Absa Bank, says the situation is not as simple as Personal Finance has portrayed.
Banks have to juggle their interest rates to take into account different costs to them of money from different sources.
As much as 70 percent of the banks' money comes from what is known as the money market (where big companies, institutions and banks themselves lend to each other).
Shortages in this market drive the prime rate up, Tomlinson says.
Deposit rates do not go up immediately with prime, he says, because the banks have to work out by how much they can afford to increase deposit rates and also because the administration takes time.
When the prime rate hit 25,5 percent last year, says Tomlinson, the banks were under pressure to raise the rate even further, but chose not to do so to keep levels of bad debt down.
Also, at that time the banks decided to hold off an increase in home loan rates to prevent further hardship to home owners.