Mozo Money Moves: Consumers cash in on low rate green loans as Australia invests in clean energy

Welcome back to another edition of Mozo Money Moves, your weekly banking wrap where we look at key changes to personal finance products, and review what’s been happening to interest rates, fees and conditions. 

This week, we look at the latest from the Prime Minister’s office that confirms what Mozo predicted in 2023, green finance is set to take off and borrowers are set to reap the rewards.

We also dive into the changes occurring to term deposit rates that could see savers willing to lock their money away for <12 months earn rates above 5%p.a. without having to meet pesky bonus conditions.

Green Finance Moves

On Thursday, Prime Minister Anthony Albanese unveiled plans for the Future Made in Australia Act, prioritising green finance and funding for clean energy projects in Australia. 

In his speech, Albanese emphasised Australia's focus on becoming a renewable energy superpower, highlighting various clean energy initiatives including the Queensland Job Security Guarantee, and the Net Zero Economy Authority. 

“Around the world, leaders are restructuring their nation’s economies and linking economic security with investments in renewable energy and green technologies,” says Rachel Wastell, Mozo’s finance expert.

“This investment has a knock on effect on consumers, particularly when it comes to green car loans and green personal loans, which are increasing in number.”

According to the Mozo database, there are 27 lenders that offer personal loans specifically for green purposes. In 2023 seven green purpose loans were added to the Mozo database, mostly from customer owned banks, and in the first four months of 2024, we’ve seen another green loan added from Northern Inland Credit Union (NICU) that can be used for sustainable home improvements, and boasts a rate close to 5% p.a. lower than NICU’s standard fixed unsecured personal loan. 

Green loans are predominantly ‘green’ car loans or ‘green’ personal loans. ‘Green’ car loans (for electric or hybrid vehicles) account for 55% of all green loans on the Mozo database, just outnumbering ‘green’ personal loans for sustainable home upgrades, ” Wastell explains.

“I think green loans are going to become more popular over the next twelve months as hybrid and electric vehicles grow in popularity, and as lenders acknowledge green loans can increase the value of assets.” 

As green loans offered by banks come with strict eligibility criteria, they have a layer of assurance that these financial investments are genuinely sustainable, and banks can then use the green loans as collateral for green asset-backed securities. 

“Essentially, as banks have a lower volume of green loans (relative to overall loans) and therefore insufficient green collateral, lowering interest rates to attract green investment can help increase the banks’ ability to issue green securities.”

"This is an exciting transformation to watch in finance, and will pave the way for consumers to embrace greener transport and more energy-efficient homes, as consumers both save money and live more sustainably."

Home Loan Moves

The home loan space has remained relatively quiet since the flurry of fixed rate changes came through in early March. 

Mozo experts are still eagerly awaiting cuts to fixed rate home loans from the Big Four banks, as these are typically regarded in the industry as a sign that a cash rate cut from the Reserve Bank of Australia (RBA) is on its way.

At Mozo, we’ve been looking at the market and thinking of ways mortgage holders can cut down the cost of their home loan in a higher-for-longer rate environment, which led Mozo money writer Jack Dona’s article to an interesting discovery.

There may be an opportunity for borrowers that have benefited from the property price boom, to get a lower home loan rate, by reviewing their property value, and their loan-to-value ratio (LVR).

Mozo Home Loan Insights:

• Rises in the value of your home can lower your loan-to-value ratio (LVR), meaning you could access a lower interest rate and save money.
• Worried about overpaying for your property? Mozo’s Managing Editor JP Pelosi shares how you can buy a home and avoid misreading the value.

Term Deposit Moves

“Term deposit rates are being cut across the board, as the market gains more confidence that the next RBA cash rate move will be down,” says Wastell.

“The focus of these cuts has been on 1 and 2 year terms, while shorter terms have been experiencing mostly increases. This could be due to the fact shorter terms are becoming more attractive to depositors, helping them to secure higher fixed rates, without committing to locking their money away for longer than a year, and without having to meet the pesky conditions attached to bonus rate accounts offering comparable rates.”

This week, Beyond Bank cut 1 and 2 year term deposits by 10-30 basis points and Goldfields Money cut Term Deposit rates for 1-3 month terms by 10-40 basis points, while Challenger Bank lifted their 6 month rate by 5 basis points. 

Other banks made both cuts and hikes this week depending on the terms. Auswide increased its 4 and 6 month term deposit rates by 65 basis points, but cut its 1 year by 20 basis points,  and Australian Unity cut its 1 year rate by 20 basis points, and increased its 3 month rate by 20 basis points.

Looking back on the changes to term deposit rates in March, to see how these have been trending, all rate moves on 2-year terms or longer were cuts, bar one increase by Rabobank, hiking its 5 year rate by 20 basis points to make it the new rate leader for that term. 

Shorter term deposits saw a number of increases with just a few cuts, as demand picks up in this area, and Wastell says those who can afford to lock away savings for 12 months or less could benefit from rates above 5%p.a, before the RBA starts their cutting cycle. 

“If, for example, you’ve got a solid chunk of your home loan deposit saved and don’t need access to the cash, getting a high rate term deposit for the next 3-12 months could be a good option, as long as you look outside the Big Four.”

The highest Big Four 1-year term deposit rate is the Commonwealth Bank’s 4.75%p.a. offer, followed by ANZ and NAB that are both offering 4.70%p.a. The 1-year rate from Westpac is 45 basis points lower, at 4.25%p.a. 

These Big Four rates are 55-1110 basis points lower than the current rate leader in 1-year term deposits, Family First Bank, that leads the pack with a 5.30% p.a. rate.

However, Wastell warns depositors to be cautious before locking away savings. 

“If you do need access to those savings before the term ends, a term deposit is not for you. Withdrawing early can mean you end up paying hefty early exit fees, or, in some cases, forfeit all the interest you could have earned.”

Highest Term Deposit Rates (1 year)

Mozo Term Deposit Insights:

• Thinking about locking up your savings with a Big Four bank? Here’s how rates from CBA, NAB, Westpac and ANZ stack up against the competition.
• If you think now is the right time for you to take out a term deposit, see our editor’s round-up of some of the highest rates on offer in April 2024.

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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