the mozo blog

These days, most of us consider marrying a cousin to be a somewhat unhealthy move. First of all, it’s illegal, and secondly, people eventually start asking why your child has three heads and an uncanny ability to eat watermelon through a barbed wire fence.

So it’s surprising to learn that the big banks have been marrying their cousins for years. You could be mistaken for thinking there’s competition in the banking industry, what with all these new products and banks popping up everywhere… But guess again: There are few banks and credit unions out there that don’t have a connection to one of the Big Four (ANZ, Westpac, Commonwealth, NAB) or some other large international financial organisation.

So we thought we’d do a bit of a family tree, to give you an idea of who’s in bed with whom, which bastard bankchild secretly belongs to which reluctant father, and so on.

First up, the banks that literally own the other banks:

ANZ
- OneDirect
- SmartyPig
- eTrade
- Esanda

Commonwealth Bank
- BankWest
- Colonial First State Investments
- ASB Bank (New Zealand)

National Australia Bank (NAB)
- UBank
- Challenger Financial Services
- MLC

Westpac
- St George
- BankSA
- RAMS Home Loans
- BT Financial Group
- Asgard

Bendigo Bank
- Adelaide Bank
- Rural Bank (formerly Elders Rural Bank)

Aussie
- Wizard Home Loans

Secondly, there are those banks that provide the actual credit for credit cards, which is then packaged by someone else.

Citibank
- Australian Central Credit Union credit cards
- Bank of Queensland credit cards
- Community CPS Credit Union credit cards
- CUA credit cards
- IMB credit cards
- MyState credit cards
- Suncorp credit cards
- Virgin credit cards

GE Money
- Myer Visa Card
- Coles Group Source Card

HSBC
-    Woolworths Everyday Money

We might not talk about it in public, but it seems everybody’s up for a spot of financial incest on the side.

Compare Banks at Mozo.com.au

The recent rise in popularity of debit cards may have some people thinking their credit card is yesterday’s plastic. Driven by the surge in internet transactions, debit cards are a league ahead of their ATM/EFTPOS predecessors, offering the benefits of greater acceptance without the risk of greater spending.

While debit cards are not new (most banks and credit unions have been offering them for years), MasterCard and Visa have recently increased their presence here to compete with EFTPOS. Since it was introduced, EFTPOS has had little competition in Australia, but the boffins at EFTPOS haven’t kept up with the times, and more specifically, the internet, opening the door for the debit card.

It seems the newly refurbished Visa and MasterCard debit cards will soon usurp the throne of EFTPOS to become the new norm. However, debit still faces the competition of the credit card. So who will reign supreme?

Credit Cards:

Pros:

• You have access to money that isn’t yours for impulse purchases before your pay day
• Rewards programs
• Travel insurance (on some cards)
• Accepted almost everywhere as a form of payment

Cons:

• You have access to money that isn’t yours for impulse purchases before your pay day
• Annual, late payment, rewards program and dishonour fees
• Interest payments on outstanding balances
• Cash withdrawals (or ‘cash advances’) incur hefty fees and interest rates

Debit Cards

Pros:

• You’re using your own money so you never have to worry about interest payments
• Accepted almost everywhere as a form of payment (including overseas ATMs)
• You can use it to withdraw money from an ATM or get cash out with purchases

Cons:

• There are fees associated with some debit cards.
• There are no rewards programs
• You could be tempted to spend more money over the internet simply because you now have the access

The verdict:
Credit cards are great if you want rewards more than you mind annual fees, and will pay off your balance before the interest rate kicks in. If this isn’t you, then debit cards are the way to go. Happy spending people!

Compare credit cards at mozo.com.au

Compare debit cards at mozo.com.au

When it comes to the game of banking, it’s hard for consumers to change the rules. But our days of getting screwed by needless fees may well be numbered, as NAB has announced it would scrap monthly account service fees on many of its accounts — at an annual cost of $110 million.

Naturally, we looked around for a catch: a minimum monthly deposit or sneaky disclaimer, but the move came out squeaky clean. NAB’s Classic Banking and eBanking personal transaction accounts are among those to change over on January 22.

NAB will also abolish over-limit fees and dramatically reduce its late payment fees — taking the sting out of financial forgetfulness (and haven’t we all been there).

The announcement comes after NAB upped the ante earlier in the year by ditching its overdrawn fee. Commonwealth Bank was quick to follow suit, but ANZ is dragging its heels and Westpac has gone AWOL on this one.

NAB hopes to make up the lost revenue in new customers, so the rest of the Big Four better check their game-plan. Because pain-free banking sounds like a winner.

Compare bank accounts at mozo.com.au

We’ve heard plenty from the major banks of late about how their funding costs are going up, and how they just “have to” pass on those increases to you, their customers.  (Of course, just as much of the reason is that they want to and perhaps most importantly, that they can.)  

But in watching the banks’ reaction to this month’s Reserve Bank rate rise (as we do each month on our Reserve Bank interest rates page), we’ve seen something that clearly goes beyond passing on cost increases and is a clear demonstration of them squeezing customers for greater profits:

They passed on the RBA rate rise faster than they passed on RBA rate cuts.

In February and April this year, the Big 4 passed on the RBA’s rate cuts an average of 9 days later.  But this month, when the RBA increased the official rate, the average was only 5.25 days.  Just by speeding things up a little, the Big 4 banks get to charge that extra 0.25% for an extra few days – and on a total home loan portfolio of $650 billion, those numbers multiply out to $17 million.  And that’s on top of the fact that not all of the last few RBA rate cuts were passed on at all.

What can be the justification for this?

If they can raise rates in 5 days, why couldn’t they move in 5 days when the RBA was cutting rates by 1%?  In December 08 and February 09, Westpac did manage to do that but ANZ, Commonwealth and nab steadfastly stuck to their 9 day delay (or in one case, did not pass any cut on at all!).  And then in April, Westpac went the other way and took 12 days to pass on the cut.  So they’ve all managed to hold onto a rate cut for longer than necessary, and longer than they are willing to hold onto a rate rise.  And we’ve seen evidence of the same sort of thing this month from several of the smaller lenders – including AMP Bank, HSBC, ING Direct, ME Bank and MyRate – who seem more than happy to follow the lead of their bigger rivals.  

You have to start wondering whether a home loan industry that is so dominated by a few players doesn’t need a little extra regulation to turn underhanded practices like this into something more even-handed.  

But they say that sunlight is the best disinfectant, so Mozo will keep shining the light on this one.

Compare Home Loans with Mozo.com.au

The rise of the online savings account has been the biggest development in the savings account market over the last few years.

Characterised by a higher interest rate, low (if any) fees, set incentives and linked access to a designated transaction account, online savings accounts have quickly become the norm as the technology wave continues to push consumers’ financial management out of the bank branches and on to their desktops.

In what is a new and potentially revolutionary take on the online savings account model, UBank, NAB’s online offshoot, has launched the ‘USaver‘ account. Well, firstly it’s a market leading interest rate of 5.11% (and if you set up an automatic savings plan it goes up another 0.1%). Whereas similar online savings accounts have high introductory interest rates that last for a few months then go down to a reduced base rate, the USaver account is set to one variable rate for life. For example, say you had the Westpac equivalent, the ‘eSaver‘ account – you’d get a special introductory rate (currently 4.3%) for 4 months then it would revert back to a base rate of 2.75% for the life of the account. Not only is the bonus rate lower than UBank’s standard rate, the base rate is less than half!

Interest rates aside, the USaver is packed with handy features. Unlike many online savings accounts, there’s no need to have a linked bank account. You can transfer your money to any other Australian bank account at any time without being charged fees or getting your interest rate penalised. Moreover, you can set up multiple accounts for each savings goal within the one account.  For example, set up one account for travel savings, one for a new car, etc. Each USaver account also comes with a nifty savings tracker, which based on your interest rate and account balance can calculate the time/money required to reach your goals and display it in a snazzy graph.

What’s the catch? Well it’s a variable rate. Where other online savings accounts give you the security of knowing that you’ll at least be getting your 3%, UBank can adjust the rates as they see fit. That being said, as soon as the rates hit a low level it’s not hard to transfer your money across to that old savings account. The other main gripe I can distinguish is the lack of a linked transaction account. With most online savings accounts, you can instantly transfer your savings to your transaction account as they are with the same bank. With the USaver, you’d have to wait a day or two in processing for your savings to get across – though arguably it’s almost another tool to stop you throwing your money away on that extra round of drinks at 1am!

So all up, I’d have to say that UBank really have put out a cracker of a product. A couple of drawbacks aside, it succeeds where it matters – it’s simple to use and apply for, has a fantastic interest rate and some great innovative features. Ubeauty!

Compare savings accounts

To “pop a cap” is a common and mostly American piece of street parlance meaning to shoot someone or something. Now I’m not here to propagate the shooting of mortgage brokers or the riddling of bullet holes in your home loan agreement (as much of a thrill as it may be). What I am here to talk about is the popping of a different kind of cap. Last week, Bankwest launched Australia’s first capped home loan, the Bankwest Capped Rate Home Loan, a move which is likely to cause quite a stir in the home mortgage market.

So, what exactly is a capped home loan? Well the basic premise is this – for a fee, Bankwest are guaranteeing that the interest rate on your home loan will not go above a certain level (7.5%) until November 2011. Bankwest will first put you on a variable rate (currently at 5.4%) and if the rates go down you will pay less, but when they go up you’ll only pay up to the maximum rate. Bankwest is essentially selling ‘peace of mind’ given RBA increases are now a reality and the inevitable recovery of world economies after the global financial crisis.

It sounds like a no-brainer – competitive rate, a guarantee on rates for 3 years all for a nominal fee  - or so Bankwest would have you believe. What’s the catch you say? First off, you’re paying more than you would for a normal loan in fees. To get the cap, you have to fork out a fee (0.15% of the loan amount). If you’re borrowing $250,000 for example, this fee totals $375. Moreover, unlike any other variable rate loan by Bankwest, the exit fees for leaving is set at 1% of the loan outstanding at the time of exit – quite a sizeable amount if you’re only 2 years into paying off a loan of that size.

The real deal breaker in the whole equation however is the capped rate. Is it worth paying the extra fees to safeguard against interest rates going above 7.5%? Will rate rises go above and beyond the 2.1% needed to make the cap effective? Only time will tell, but it is a lot of interest rate rises in just 3 years. Moreover, if you are worried by rising interest rates perhaps you would derive more security in fixing all or part of your loan? Bankwest’s 3 year fixed rate is a good 40 basis points lower than the cap’s upper limit.

Despite the potential drawbacks, this home loan product could be heralded as the opening salvo of what is sure to be an intriguing period in the Australian home loan market as interest rates begin to rise. What will be interesting is to see how the market, particularly, the ‘Big Four Banks’, respond to Bankwest’s initiative. Watch this space, as there’s sure to be plenty more shots fired in the coming months.

Compare Home Loans with Mozo.com.au