Deposit rates move when the central bank moves, but not by the same amount and not at the same speed. The lag and the shortfall both have straightforward explanations.
Deposits are funding, and funding has alternatives
A bank lends out the money it holds, so deposits are a source of funding rather than a service it provides. Its willingness to pay for them depends on what the funding is worth.
When the policy rate rises, the return a bank can earn by simply placing reserves with the central bank rises too, which raises the value of every deposit it holds.
That is the mechanical link. Higher policy rates make deposits more valuable to the bank, so competition for them can push what savers are paid upward.
Wholesale funding sets the ceiling
Banks can also raise money in wholesale markets, and that alternative caps what they will pay depositors. Paying savers more than the wholesale rate makes no sense.
Deposits remain attractive because they are stickier than wholesale funding and are treated more favourably in liquidity rules, which is worth paying something for.
The size of that premium varies with how much a bank wants to grow its lending, which is why rates differ noticeably between institutions at the same moment.
The pass-through is asymmetric
Rates offered to savers typically rise more slowly than they fall. A cut in the policy rate reaches deposit accounts quickly; an increase arrives gradually if at all.
The asymmetry reflects inertia among savers. Most balances do not move when a better rate appears elsewhere, so a bank loses little by delaying.
Where balances are known to be rate-sensitive, the pass-through is much faster, which is why fixed-term products respond more promptly than instant access accounts.
A bank's need for deposits shapes its pricing
An institution with more lending it wants to fund will pay more to attract balances. One already holding surplus deposits has little reason to compete.
Newer banks building a loan book often price at the top of the market for exactly this reason, while large incumbents with entrenched current account balances sit well below it.
The rate on offer is therefore information about the bank's funding position rather than a straightforward measure of generosity.
Account structure hides much of the difference
Headline rates frequently apply to a limited balance, a fixed period or a restricted number of withdrawals, and the rate on amounts outside those bounds is far lower.
Institutions also run many legacy accounts closed to new savers, which are rarely repriced upward and quietly hold large balances at low rates.
Comparing the advertised figure across banks therefore misses most of what determines the interest actually received, which depends on which product the money sits in.