Jack Derwin* says Australia’s digital banks have each now released their savings account rates — and they are far better than those of the incumbents.
It’s begun.
As of 16 January, all of the country’s newly arrived neobanks have released their savings interest rates and — surprise — they all outstrip the big four banks.
It’s proving to be the first major battle between the incumbents and the disruptors.
“Australians need a bank that serves their interests,” Xinja co-founder Eric Wilson (pictured) said in a statement to Business Insider Australia.
“We’re not like Australia’s existing banks: we are a true neo with a different culture and a different offering.”
Xinja’s new savings interest rate has just been set at 2.25 per cent, putting them on par with fellow digital banks 86 400 and Up, which is wholly owned by Bendigo Bank.
Volt meanwhile will join them at the top of the market, paying customers 2.15 per cent when it goes public in February.
Volt is currently rolling out accounts to its 40,000-person waitlist.
Significantly though, Xinja’s and Volt’s come with no attached conditions, meaning customers can claim these without having to make a certain number of deposits, or refraining from withdrawing, to get the top rate.
This, Volt founder, Steve Weston told Business Insider Australia, is where the real difference between big banks and the challengers lies.
“What percentage of the big banks’ customers actually get the higher interest rate consistently?” Weston asked.
“The figure would be appalling.”
“They would say they’re not breaking any rule but they would never answer the question.”
“Yesterday’s banking you could get away with that sneaky shit.”
“The banking of today says if you know the customers are getting a poor outcome, even if you’re not breaking any regulations, you need to stop.”
“We can lead by example on this, and we can make a lot of noise.”
It’s a point on which competitor Xinja agrees.
“There’s no introductory period, no minimum deposit and no mandatory monthly top-up [with us],” Wilson said.
“There’s no tricks or smoke and mirrors to the offer: put your money in and get a great rate.”
Notably, 86 400 requires customers deposit $1,000 each month or its top-line rate falls to 0.4 per cent — a fact CEO, Robert Bell defends.
“If you’ve deposited just $999 and the end of the month is coming up, we’ll send you a reminder to top it up to $1,000 so you get the bonus interest,” Bell told Business Insider Australia previously.
“What neobanks are really about is having the customers’ interest at heart, not our own profits.”
Up is in the same boat, requiring five or more card purchases per month, or its rate falls to 0.5 per cent.
“Banking needs to rebuild trust,” Weston said.
“Right now people trust banks to not lose their money but, bloody hell, they can’t trust them to look after them beyond that.”
The big four banks have laid a series of traps to exclude customers from their headline interest rate.
As the cash rate gets cut towards zero, the big banks have been finding tricky ways to conceal their low rates.
Take NAB, for example.
The base rate on all its savings accounts is an anaemic 0.11 per cent.
Its ‘iSaver’ account dresses that up with a 1.44 per cent introductory rate that runs out the door after just four months.
Meanwhile, you can claim 1.5 per cent indefinitely in its “reward saver account”, unless of course you want to ever use that money — a single withdrawal from it sees customers fall back to 0.11 per cent quick smart.
I wish that was all.
You also need to make at least one deposit every month, and it can’t be on the last day of the month.
All the big four banks pretty much follow the same disingenuous formula.
ANZ gives you just three months at 1.6 per cent while CBA and Westpac both offer 1.66 per cent on their core savings products for five months.
When those few precious months are over, all three then lump you with 0.1 per cent for the rest of your natural life.
Besides this basic rate, each bank then offers another savings account in line with NAB’s “reward saver”, with an exhausting list of conditions that serve no other purpose than to prevent loyal customers from growing their savings.
Westpac, currently being investigated for 20 million breaches of the Anti-Money Laundering Act, is the most reasonable in this respect.
It pays 1.2 per cent as long as your balance is higher at the end of each month, or 0.45 per cent if it’s not.
CBA’s “GoalSaver” pays 0.89 per cent on anything under $50,000, provided you top it up with $200 a month and don’t withdraw one cent.
ANZ will pay 1.6 per cent as long as you make a deposit and don’t take anything out.
When you don’t meet these stringent conditions, however, this whole rigamarole becomes farcical.
Both banks pay a base rate of just 0.01 per cent.
That’s per year.
It’s hardly a sign of good faith.
Just to be clear, if you were to forget to make a deposit on your account all year, ANZ and CBA would at the end of 12 months have paid you exactly 10 cents for every $1,000 you have with them.
God forbid your bank interest is lost to a rounding error.
It’d almost be a dead heat to the bottom of the pile if ANZ didn’t also charge $1 for any electronic transactions on the account.
You may as well kiss your precious 10 cents away right now.
* Jack Derwin is a senior journalist with Business Insider Australia. He tweets at @jack_derwin.
This article first appeared at www.businessinsider.com.au.
