Thrifty South Africans have been hit in the pocket with banks starting to drop term deposit rates by up to one perecent.
This follows the announcement two weeks ago by Chris Stals, the Governor of the Reserve Bank, of a one percentage point cut in the bank's lending rate, which affected mortgage rates first.
According to the latest available figures, the banks that have not dropped their term savings account rates are Syfrets, Marriot and Mercantile Lisbon.
The reason why some banks cut their savings rates sooner than others is that the banks have different sources of money.
Some, like Absa, depend more on retail funding (individual savings deposits) than other banks which are funded more through wholesale deposits.
Funds in the wholesale, or money market, come from other banks or large companies.
Retail deposits are a cheaper source of funding for banks because individual savers' with small amounts to invest will get lower returns than the institutions that invest larger amounts in the money market.
When interest rates go up
When a one percentage point interest rate increase is announced, banks that rely more on retail funding are more inclined to increase mortgage rates immediately than those that source money from the money market.
At the same time, these banks will not necessarily immediately re-price interest rates on long-term savings accounts.
Because their funding (from savings deposits) stays at the same price while their income (from higher interest on mortgage rates) increases, these banks will expand their margins by one percentage point.
This is also called a positive interest rate gap.
This obviously benefits banks that are retail funded. On the other hand, those that are wholesale funded generally adjust lending rates on a daily basis.
In the case of a one percentage point interest rate rise, these banks are likely to increase their interest rates on lending the very next day.
This means their income will increase by one percentage point, but so will their expenditure in terms of interest costs.
The bottom line is that banks which rely on wholesale funding have little to gain from an interest rate increase.
When interest rates go down
When interest rates go down by one percentage point, the opposite applies.
A retail funded bank will re-price its lending to clients immediately but it might not re-price its savings account interest rates immediately. The result is that they squeeze their margins by one percentage point.
While banks will generally want to get their savings rates down when interest rates drop, some are likely to time this according to their funding base retail or wholesale.
The limit on how long any bank will remain above the market in terms of its savings deposit level will be determined by how much it benefits from such a position and how many clients it expects to lose if it drops the level.
The effect of adjusting savings rates (a possible drain of business) will be felt more by traditional savings banks.
Banks are in the business of making money. Decisions on when to adjust interest rates on savings are a combination of offering clients the most attractive deal and maintaining an acceptable level of returns for the bank.
First National Bank, for instance, says its decisions on when to raise or lower interest rates is a business decision driven purely by market forces and the needs of the bank. It has nothing to do with how the bank is funded.
What some of the banks say
John Maxwell, managing director of the retail division of NBS Boland, says NBS Boland sets its retail rates according to what is happening to the wholesale rates.
He says you have to keep in mind that the rate that you lend your assets is driven by the cost of funds in the market and these, in turn, are driven by factors such as how attractive lending in the money market is as opposed to investing in equity.
"NBS tends to watch what happens in the market and moves along accordingly.
"Generally we do bring rates down in tandem."
Good Hope Bank has a policy of re-pricing its borrowing and lending rates immediately in response to Reserve Bank rate increases or decreases.
Spokesman Ulrich Fobian says the bank does not believe in letting one cycle finance another.
He says clients of the bank, which has a fairly even split between retail and wholesale funding, expect to see immediate changes following announcements on interest rates.
"Clients are not interested in whether their banks are retail or wholesale funded. They want consistent service."