Are you earning enough on your savings?

To the disappointment of people with mortgages and other loans, interest rates have remained high in Australia. 

But if you have a nest egg to invest, you are probably hoping that the Reserve Bank doesn’t go overboard with any future cuts to the official rate. 

High interest savings accounts are undoubtedly an important and valuable investment option for many seniors. 

But now is a good time for a reminder that you need to pay attention to the small print when comparing products, even on websites designed to help you do just that. 

In research released in late 2023, the Australian Competition and Consumer Commission (ACCC) concluded that some people are missing out on earning higher interest on their savings due to ongoing barriers to searching for, and switching between, retail deposit products. 

The Retail Deposits Inquiry Final Report found that banks use strategic pricing for retail deposit products, including introductory and bonus interest rates, and a range of fees and charges. 

This creates complexity and makes it difficult for consumers to compare products not just between banks but within the same bank. 

The ACCC noted that consumers depend on retail deposit products such as savings accounts and term deposits to safely store almost $1.5 trillion of their savings, conduct their everyday banking, and earn a decent return by way of interest.

“While high headline interest rates may seem attractive to customers, they can come attached with conditions that are hard for customers to meet and keep track of,” ACCC chair Gina Cass-Gottlieb said when releasing the report. 

The report recommended that banks: 

• Be required to tell customers when they change their interest rates, and prompt them to consider switching to a better rate 

• Alert customers if they are about to lose entitlements to their bonus interest, for example by withdrawing too much or too often in a given month. 

“During our inquiry, we were concerned that several banks could not tell us how many of their customers had missed out on bonus interest, or which specific condition they failed to meet,” Ms Cass-Gottlieb said. 

While offers of bonus and introductory interest rates are commonly used by banks to attract customers, the ACCC noted that consumers often do not receive bonus interest and may be better off with other products.  

While some financial product providers are better at disclosure than others, the message for investors remains the same: understand the product you are buying. 

“Consumers can find the complexity of the pricing of retail deposit products overwhelming,” Ms Cass-Gottlieb said. 

She also cautioned that why they are helpful, product comparison sites need to be read carefully. 

“While comparison websites can offer information across different banks and products, the results consumers see and the way they are ranked can be influenced by commercial arrangements,” she said. 

“It is important for consumers to be supported by clearer communication and information from banks and comparison websites, so they can receive the full value out of the products they are using.” 

Source: ACCC Media Release