Why Are Fixed Interest Rates Lower than Variable?

I'm looking at QBANK and the rate they give for 1 year Fixed and Variable are vastly different - 1.84 for Fixed and 2.29 for Variable. Wouldn't the Fixed rate be slightly above Variable as it's usually intended to protect against interest rates rising during the Fixed period?

This seems a common thing across multiple lenders.


  • Simply speaking this is related to the x-year bond rate (fixed interest loan) is lower than the Bank Bill Swap rate or sometimes on news referred to as the 90-day overnight cash rate (variable rate loan)

    There are more factors involved. But above is the gist.

    • Well, that was answered quick! Hah, thanks. I guess if you're getting all the features you want, a 1-year fixed is a much better option right now provided they don't piss about on fees and refinancing is an option later.

      • Fixed Price fees can be massive if you break the contracted period.

        • They can. But they probably won't.

          If anything, rates will probably start going higher, opposed to even lower.

          If rates go higher, you would expect no break costs as banks will be happy to let you go and lend to a new customer at a higher rate

        • They are only substantial if you break when the current fixed rate is lower than your fixed rate. I've locked in for 3 years at under 2%. If they go lower during that time, it won't bother me that I'm missing out because I'm happy with the deal we've got.

      • https://www.abc.net.au/news/2021-06-12/variable-rates-and-wh...

        This is one of the articles I read about this.

        Unfortunately, banks do what banks do, without giving you reason.

        I also want to make a note that from the same bank, I find their standard variable loan rate is high like 3-4%. The new variable rate loan only has a clause for a "discount" rate pegged from that variable rate, so we see new loan has lower rate (because higher "discount") but existing customers rate don't change. When the bank raises variable rate, all settled loans will likely go up at the same time. Also when fixed interest loan expires, it reverts to this high variable rate. Pretty much encouraging refinance or suck up to loyalty tax.

        An QBANK example I can think of is their advertised variable rate:

        Special Offer Rate 2.29% (1.55% discount to Classic Rate)
        Classic Rate 3.84%

        When your fixed interest loan expires, it goes back to the 3.84% (or higher if they raise rates since settlement), not the 2.29%

  • In additional to what everyone said about. Better to lock you in with a guaranteed income for 2 years than it is having to give someone $4k incentive to refinance plus marketing expenses and cost of people to get it all sorted.

  • You pay the higher rate to reduce your future risk, or to enhance your future opportunity.

    In normal times, fixed interest is a bit higher than variable, and if you take that option, you are essentially buying insurance against future rate rises.

    In these unusual times, if you take the higher (variable) rate, you are essentially buying the opportunity to jump on a lower rate if rates reduce.

    If fixed is cheaper than variable, then at some level, the entire interconnected system of bankers, businesses, investors and speculators that makes up the global “market” feels that rates are more likely to go down than up.

  • Locked for 4 years on under 2%, which to me is ideal. Give me room to breath and make sure all bills are paid.

    I can get ahead too, but only by 20k.

  • Because at the moment fixed rate funding is cheaper for the banks so they are passing this saving onto customers

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