Customers may miss out on savings rate increases due to account conditions

Consumer advocates express concern that a significant portion of customer savings are trapped in accounts with stringent requirements, often involving regular contribution amounts that customers struggle to meet. A 2023 retail deposits inquiry by the competition regulator found that over 70 percent of customers fail to fulfill these monthly conditions.

While major banks swiftly adjusted mortgage interest rates after the September increase, customers with high-interest savings accounts haven’t seen a comparable boost. Canstar reports that rate increases are often limited to specific account products and accompanied by strict conditions. Failure to meet these conditions results in a reversion to a base interest rate of 0.10 percent.

This situation means that even minor lapses, such as missing a minimum deposit or exceeding withdrawal limits, can drastically reduce interest earnings. Furthermore, hundreds of billions of dollars in customer funds are earning no interest at all within the big four banks.

As of June, Commonwealth Bank held $122 billion in accounts with zero interest, followed by Westpac with $82 billion, NAB with $67 billion, and ANZ with $61 billion.

Sally Tindall of Canstar emphasized that banks could be more proactive in informing customers about potential missed benefits. “Alerting people with a proactive email or text message… close to the end of the month that tells you if you’re not going to meet those terms and conditions,” she suggested.

Corey Washbourne, a Melbourne saver, finds the conditions manageable, adding approximately $50 monthly to qualify for the bonus rate. He appreciates the higher interest rates, which help protect his savings from inflation.

The Australian Banking Association’s CEO, Simon Birmingham, stated that banks support customers in maximizing their savings through various channels, including app alerts. He highlighted that over $120 billion in interest was paid out to depositors last financial year and that the wide variety of banking products offers customers flexibility.

Many Australians are missing out on potential earnings due to choosing accounts with no interest. An ACCC inquiry revealed that only 16 percent of consumers switched savings accounts in the past three years, and just 11 percent switched transaction accounts.

Michelle Cull, associate professor of accounting and financial planning at Western Sydney University, advises consumers to regularly review their banking options, suggesting alternatives like offset accounts. She cautioned that introductory rates are often temporary and urged consumers to carefully examine the fine print.

The Reserve Bank is scheduled to meet next week to consider another potential interest rate increase, driven by a worsening inflation outlook. Markets currently place a 98 percent probability on a rate hike.

Sally Tindall encourages dissatisfied customers to explore alternative banking options, noting the abundance of choices available.