the mozo blog

Last night’s federal budget contained the very welcome news that interest on your savings will soon receive special tax treatment. From 1 July 2011, you’ll only pay half the tax on the first $1,000 of your interest income.

This is a big win for the banking industry. The measure only applies to income earned on bank accounts, savings accounts, term deposits, bonds and annuities. It will have the effect of pulling money into the banks from other investment vehicles — and from out of cookie jars and under mattresses. And it is Mr Swan’s hope – and mine, and I’m sure yours – that this extra leg up for banks will help them gather sufficient deposits to reduce the overall cost of funding their home loan products. Wouldn’t that be nice: better savings returns and cheaper home financing. Only time will tell.

But what’s it mean for you exactly? Well, at an interest rate of 5.85% (the best standard at-call interest rate in the market right now, at UBank), you’ll be able to save up to $17,000 and receive the full rate reduction. If your taxable income is between $35,000 and $80,000 then you’ll only pay an effective tax rate of 15% on interest: that means a saving of up to $150 a year. And of course the savings are even higher if you’re on a higher rate of tax.

But here’s a savings measure you can access right now. If you already have money that’s not getting the best rate in the market, you can make $150 or more by moving it. If your 17 grand is only earning 4.50%, say in an old BankWest TeleNet Saver account, then moving it to a rate of 5.85% makes you $150 — even after paying current tax rates. And you can do better yet with a Term Deposit, where plenty of providers offer well over 6% on your money for terms as short as 6 months.

If you’re not making the most of your savings, don’t wait for 2011. Mozo’s Rate Chasers have been out in the field chasing down the best rates – compare savings account and term deposit rates now.

RBA Governor Glenn Stevens has released the text of another speech, this time to business leaders in Toowoomba. And so it’s time for analysts, pundits, commentators and generally interested persons to pick over his themes, his words and the general vibe of the thing, to try and second-guess what the Reserve Bank of Australia will do to interest rates next month.

As always, there’s something for everyone. References to good economic news and references to risks and uncertainties. If you want to predict that rates will go up in May, you can quote him on the speed of the rate cuts in 2008/9 and suggest that he’s paving the way for faster rather than slower increases. If you want to predict that the RBA will pause in May and leave rates steady, you can quote him on the need to leave flexibility in how we respond to the way the recovery unfolds. And there’s plenty each way in his analysis of the global economic recovery.

But look closer. We’ve found an ingenious code hidden in the speeches of the RBA Governor. And an astonishing truth… unveiled at last!

He tells us that, when responding to the GFC, the RBA cut rates by 375 basis points over 5 months. And that so far, they’ve responded to the recovery by increasing them by 125 basis points over 7 months, “…which is still only about a third the pace of the earlier declines.” Now 375 over 5 equals 75, but notice that 125 over 7 is well short of a third of this – it is not even a quarter! Rather than a numerical error, this is actually a clue. To get to exactly one-third, you need 200 over 8… and a 75 basis point increase in May would do exactly that! Unbelievable!

A 75 basis point increase next month is a shocking conclusion, well outside what most observers predict, but one clearly supported by the clever trail of clues he has left. But, rest assured that this would be the final increase: his speech contains 3133 words, and 3+1+3+3 = 10, and 1+0=1, ie he’s telling us that there is just one last rate rise.

Silly? Yes, but it is no less scientific than some other predictions people make from picking apart his speeches for clues. The RBA has told us clearly that there is likely to be a little bit more to go, but that the timing is up in the air. That’s all the clues they are going to give us. Maybe May, maybe June, maybe both, maybe neither.

So instead of predicting what the RBA might do, here at Mozo we’ll keep our eyes on what financial providers do in response. Every month, Mozo’s Rate Chasers update Reserve Bank interest rates with information about home loan rate rises as it comes in. And of course, you can find everything you need in our extensive database of rates, fees and features, for home loans, credit cards, savings accounts, term deposits, personal loans and bank accounts.

mozo.com.au. we chase. you save.

Late last year, consumer group Choice won a significant victory in the conservative (ie stubborn) field of bank fees. NAB declared it would drop dishonour fees on overdrawn savings and transaction accounts following a backlash against the unpopular charges. And now businesses will reap the rewards, too.

The bank was pressured both by ongoing complaints and the Reserve Bank’s disclosure that the industry raised almost $1 billion in dishonour and exception fees. While the cause was taken up in defence of underprivileged account holders, small business will also enjoy the fruits of fee free accounts, which come into place this week.

At this stage, none of the other big banks have followed NAB’s move, but it’ll be interesting to see whether more consumer agitation drives changes that also benefit small business. We’ll keep you posted.

Compare banks accounts at mozo.com.au

The truth behind the comparison of banks and banana smoothies! Westpac tried to justify its interest rate increases by comparing themselves to a banana smoothie company. This video covers a few aspects that they forgot to mention…

I warned you.  Westpac were off the mark early on Tuesday morning with an aggressive term deposit rate, and I blogged that it would put pressure on home loan rates to increase beyond the RBA.  Bingo!  Westpac was first out with that announcement as well, so clearly they’d planned the whole thing: put out the term deposit good news first to take the sting off the home loan bad news.

St George are matching the Westpac term deposit offer, so no prizes for guessing what their home loan rates will do.

Now watch the other sheep follow the leader.

Compare home loans at mozo.com.au

Compare term deposits at mozo.com.au

Westpac has just launched an astonishing 1 year term deposit rate this morning: 6.80%.  They’re not even waiting for the RBA announcement this afternoon.

A 1 year rate of 6.8% is an enormous rate, bigger than any 1 year or even 2 year term deposit rate in the market.  Yesterday the best 1 year rate around was an online special from Rural Bank of 6.25%, and the best the Big 4 offered was 5.5%.  You couldn’t get any more than 6.5% even if you locked your money away for 2 years!

It’s true that term deposit rates have been on the rise for a while.  Even before today’s announcement, the average 1 year TD rate was 1% higher than 12 months ago, even though the Reserve Bank rate is still much lower.  But up to now, it’s been the smaller players leading the charge on Term Deposits rates: yesterday’s leading 1 year deposit rates came from Rural Bank, AMP, Bank of Queensland and Bendigo.  That’s primarily because they’ve struggled to fund their lending compared to the Big Banks, and therefore need to attract more deposits.  So the fact that today’s aggressive move has come from Westpac is a real eye-opener.

We’ve been blogging here at Mozo for a while about the emerging savings account rate wars.  Now the conflict is spreading.  The other players will need to sharpen up their own term deposit rates in order to keep money coming in.  This is a great time to be saving!

But we have to wonder, at what cost to loan rates?  Last month, Commbank CEO Ralph Norris was blaming higher term deposit rates as one of the things driving up home loan funding costs, and one of the reasons why he wouldn’t rule out increasing variable home loan rates by more than the RBA increases.  This certainly isn’t going to help homeowners!

Compare term deposits with mozo.com.au

Part of ANZ’s new “making banking simpler” push is their ANZ Money Manager service.  It sounds fantastic – it aggregates all your bank balances and transactions in one spot online, even if they aren’t ANZ products, so you can see the complete picture of your money.  (ANZ say it is a first for Australia, but there were aggregator services like this as many as 10 years ago.  And they never took off.)  The thing that caught my eye about ANZ’s offering was that it can automatically categorise your transactions so you can see what you spend your money on, and you can feed that info straight into their online budgeting tool.

But when I went to try it out, I stopped dead at the point where it asks you to divulge the userid and password of your other online banking accounts.  ANZ say it’s safe, but I just couldn’t bring myself to do it.  If something goes wrong, ANZ will no doubt point to the fine print of their terms and conditions, where they warn that getting information through their service “is done at your own discretion and risk”.  And my other bank isn’t going to come to the rescue, because their conditions are that you don’t disclose your info to anyone – not even to a password-protected service run by ANZ.

What do you think?  Would you hand over your internet banking passwords to ANZ Money Manager?

Compare bank accounts with mozo.com.au

The fastest thing on four legs on Cup Day was in fact the major banks, with their fastest-ever reaction to the RBA rate rise.

After last month’s RBA rate rise, I wrote here about the Underhanded, not even-handed way that the major banks passed on the increase faster than they passed on previous rate cuts.  Across all their home loans, that little trick saw them pocket something like $17 million extra in October.  Our story was also picked up by the Daily Telegraph.

Well clearly the banks read it as well.  But instead of embarrassing them into being fairer to their customers, it seems all I managed to do was encourage them to screw you even harder.  The Big 4 managed to pass on the November RBA rate rise even faster than the last one!  When the RBA cut rates by 1% in February, it took the major banks an average of 8 days to pass on the cut and in April it took 10 days.  Last month they passed on the RBA rate rise in just over 5 days, and this time around they’ve taken only 3.5 days.  It is staggering to think that, had they passed on the 1% cut in February as fast as they acted this month, borrowers could have saved as much as $80 million.  That is simply taking advantage of their market position, and taking you for a ride.

And that’s what I call Shocking!

Compare Home Loans with 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

ING Direct has just taken the wraps off its new “Orange Everyday” account.  ING Direct have been hinting for a while now that this transaction account would refund fees charged by ATMs when you withdraw your money.  Now the full details have been announced, and the bad news is that the much-anticipated ATM fee refund only applies if you withdraw $200 or more.  According to the latest RBA statistics, the average ATM withdrawal is about $180.  So in looking for the best transaction account, you really need to consider whether the way you use your account matches the conditions each bank has attached to their offering.  Are you happy to jump through their hoop?

If you always take out $200 cash or more, ING’s Orange Everyday account certainly is worth considering:

• ATM fee rebated from any ATM in Australia if you withdraw $200 or more.
• EFTPOS is free, and ING pays you 50c if you withdraw $200 or more as cash out via EFTPOS.  Yes, that’s right: they pay you to take cash out.
• $20 bonus paid on each of your first salary deposit, direct debit and Visa Debit purchase, if you do them before 2 November.
• Interest: none, but you can link to their savings account.

If you always deposit your salary to your transaction account, the BankWest Zero Transaction account may suit:

• ATM fee rebated from any Big 4 (or BankWest) ATM, regardless of the amount.
• EFTPOS is free.
• You must deposit $2000 a month or they’ll transfer you to a different account.
• Interest: none, but you can link to their savings account.

If you keep a few grand in your transaction account, or can’t be bothered transferring to and from a separate savings account, then you might prefer an account that pays some interest rather than worrying about the fees.  For example, the AMP First account pays 4.35% interest, charges $5 a month, and cash is free at nab ATMs, RediATMs and EFTPOS.

And of course if you’d just rather stick with using one bank’s own ATM, most offer an account with no transaction fees for about $4 a month.  Some of these pay a little interest, and some even waive the account fee in certain circumstances.

The move by ING Direct could encourage the major banks to look for new ways to offer fee-free banking, particularly if Brett Morgan, ING Direct’s Executive Director of savings gets his way. “We want to become the Australian consumer’s main bank, their favourite bank; they may bring their whole banking relationship to us”.  It will be interesting to see how many people are happy to do things the ING way.  And it will be interesting to see what other products come out in response, and what sort of conditions are attached.

Compare bank accounts with Mozo.com.au