the mozo blog

Richard Branson was in Sydney yesterday, bearing the news that Virgin Money is relaunching its consumer banking arm. Earmarked by Branson as “classic Virgin territory” due to the domination of the Big 4 in the marketplace, Virgin Money has declared its intentions, in alliance with Citibank, to make a ‘fair profit’ on the back of “simple and fairly priced products”. The first cabs off the rank in this quest to take on the Big 4 are in the credit card and savings account market.

Virgin Saver
The Virgin Saver is Virgin’s online savings account, a no fees account with a variable introductory rate of 6.75% for 4 months that falls back to 5.35%. These numbers put it right up there with the top 5 standard and promotional savings account rates in the market and it’s a great product, particularly as it lacks the deposit and withdrawal conditions held by some products.

Virgin No Annual Fee Credit Card
The Virgin No Annual Fee Credit Card is Virgin’s ‘no frills’ card. No annual fee and no rewards of any note. It comes with an introductory offer of 2.9% on balance transfers for six months and an ongoing purchase rate of 16.95%. Whilst promoted as “simple and fairly priced”, there are only 44 interest-free days and the card features the sneaky trick we’ve previously highlighted of reverting the balance transfer to the much higher cash advance rate of 20.99% as well.

If you plan on carrying a debt, using our credit card comparison table one can see that there are other low rate and low fee cards that could save you over $500 over 3 years on an average balance of $3000, taking into account the interest and fee costs. However, if you plan on paying off your balance in full each month, this card will cost you nothing, and is well worth picking up for those who enjoy things like the choice of card colour and Virgin’s customer service.

Virgin Flyer Credit Card
The real headline grabber here is the last product on the list, the Virgin Flyer Card, its Platinum frequent flyer card. And it’s a bit of a Jekyll and Hyde proposition.

What Virgin is hoping will sell this product is the flight rewards. The biggest selling point is that four times a year, you’ll get 2 for 1 flights on Virgin Blue. It’s a great feature that’s sure to appeal to many. Factor in the best earn rate for velocity points without getting an Amex, for the first $1,500 monthly spend anyway, and it’s a very good rewards card. Using our credit card Rewards Revealer, at the Australian average spend of $14000, it’s the clear leader once you factor in the free flights. For the high rollers looking for a Platinum Card, those spending $50,000 a year would only derive more value from the Citibank Emirates Platinum card, taking annual fees and free flights into account.

It must be noted however, that as a day-to-day credit card, it’s a pricey option. The rates’ conspicuous absence from Virgin’s release is a signpost to the card’s steep nature. With a rate of 20.99% for both purchases and cash advances and a balance transfer rate of 6.9% for 6 months that reverts to 20.99%, it’s one of the most expensive cards on the market. Throw in the interest free period of only 44 days and you can definitely say it’s not a card to accumulate debt on.

The Verdict
The Virgin Saver looks a winner, particularly given its simplicity. The No Annual Fee card is a good basic card for those who pay off their balance in full each month, but there are better options for those who like to rack up a debt. Again, the Virgin Flyer card also isn’t one for the debt accumulators, however it makes up for it with an excellent flight rewards program. With home loans yesterday stated to be in their sights, it’ll be interesting to see where Virgin goes next.

Compare all savings accounts and rewards credit cards at mozo.com.au

State against State. Mate against Mate. It’s a line that epitomises rugby league’s annual showcase of interstate rivalry, underscoring the passion and pride on display between the NSW cockroaches and the cane toads from Queensland. With rugby league’s annual State of Origin series now decided, it’s time to bring back the financial biff and pit the states head on!

Since Origin is about representing your state, community and people, we’ve decided to use what consumers have said about their banks hailing from each particular state to create an overall picture. So using the 30,000 bank reviews you’ve submitted, it’s time for Mozo’s annual ‘Rate of Origin’. State against state. Rate against rate.

With 7371 reviews behind them and big players like Westpac, Macquarie and St. George as well as no less than 4 credit unions on our list of the top 10 Australian banks in the side, NSW comes in as strong favourites. As always, Queensland are the underdogs, conceding a significant numerical advantage in both number of reviews (2416) and number of providers (10 to NSW’s 15). They’re led by Queensland stalwarts like Suncorp, Bank of Queensland and their sole representative in our top 10, CUA.

With the NSW camp already shattered and in turmoil after losing their fifth straight origin series, it will come as another body blow to the state and their footballers that NSW is getting dusted not only on the field but also in their wallets. NSW banks put up a solid if unspectacular average overall rating of 6.91, led by strong performances by Teachers Credit Union and the Greater Building Society. However, with old hands Suncorp and Bank of Queensland ably steering them round the park and strong efforts from CUA and Heritage Building Society, the banana benders have stormed home with an overall rating of 7.34 to claim the Origin title.

The real difference between the sides was the abject performance of Westpac, whose rating of 6.7 was the catalyst to NSW’s demise. If you remove Westpac from the equation, NSW’s rating rises to 7.25, a mere drop goal away from victory. NSW will be looking for Westpac to pick up their game over the next year to avoid the pain and humiliation of another Rate of Origin defeat.

So as the dust settles and the xxxx’s are cracked in bank head offices around Brisbane and wider Queensland after another fiery clash between these two interstate rivals, I implore all Origin fans out there to get behind your state and rate your bank to give your state a shot at Origin glory next year!

A slew of Australia’s banks, including the Big 4, are facing, what is being labeled as the largest class action case in corporate history. Litigation funder IMF Australia is funding several class action suits against the banks, seeking at least $400 million of the $5 billion charged in ‘exception fees’ by the banks.

Exception fees are fees charged by banks for ‘exceptional’ circumstances. These circumstances include late payment fees on both credit cards and loans, over-limit fees on credit cards, honour fees when overdrawing a bank account, and dishonour fees charged for cheques that bounce. Reserve Bank data shows that banks charged consumers $961 million in exception fees in 2008.

The impact of these fees on your credit card cost can be significant. Say you’re on a ‘low rate’ credit card with an interest rate of 11.99% and running a $3000 balance. A $30 charge for being a couple of days late on a payment effectively makes your interest rate 12.99% in terms of your cost. If you’re late or overdraw a few more times over the course of the year, the additional costs effectively transforms your low rate card into a middle of the range card without any of the perks.

The principal legal argument for the class action is that when a customer breaks a contract with a bank (by making a late payment for example), the bank may only be able to recover a reasonable estimate of the cost. IMF Australia’s contention is that the banks charge fees much higher than what can be termed a ‘reasonable estimation’, given that it actually costs banks “only a few dollars at most” when you make a late payment or overdraw on your account.

There is a foreign precedent, with close to a million Britons unsuccessfully seeking compensation for overdraft charges in 2009, though a new case set to be heard in Glasgow in June could lead to more litigation. The issue also reared its head in America, with the US Federal Reserve recently ruling that creditors must obtain a consumer’s consent before charging fees for transactions that exceed the credit limit.

Here in Australia, the worst offenders for credit card over limit and late payment fees are Citibank and Suncorp, both charging a whopping $40 for each occurrence. Even NAB, who made a great deal of noise when slashing bank account fees this year, still charge $25 for going over your card limit and $30 for a late payment. Westpac and St. George lead the way, charging only $9. However, the case goes back six years, which could still spell trouble for those who have only recently cut fees.

Even though there will most likely not be a resolution for years, if ever, it will be intriguing to see how the banks behave in the light of all this publicity, particularly in a time of record profits. Even if this case is successful, it almost goes without saying that the banks will find other means to maintain their margins, whether through higher regular account fees or interest rates. As a consumer, the best way to deal with this is to shop around. Only when customers start voting with their feet (and their wallets) will banks really address these issues.

Banking comparsions at mozo.com.au

Since the last time the Reserve Bank cut its interest rates back in April 2009, the home loan market has seen a predictable and steady shift upward in rates, save for the odd excessive rate hike. In what is one of the more dramatic and interesting days in recent memory, both CUA and AMP have announced cuts of 0.25% and 0.22% respectively to their flagship variable rate home loans. It is indeed a welcome news day for consumers, with competition now firmly back on the agenda in the marketplace.

CUA has laid its cards on the table, declaring that they are actively looking to “exploit the perceived absence of competition in the banking industry”. Only time will tell as to the sustainability of the competition-fuelling strategy CUA is looking to push. Indeed, this a sharp contrast to the news of yesterday, where comments out of Westpac suggested that pressures on lenders were only increasing and bigger rate rises loomed. CUA’s new standard variable rate loan at 6.37% is now a full half a percent below the average Big 4 rate, while AMP’s basic variable rate is at an even better 6.27%. AMP’s is advertised as limited time offer, so perhaps they’re waiting to gauge the reaction of both consumers and competitors.

So will competition and rate cuts be the ‘new black’? One thing is for sure, the once stagnant home loan market has been given the shake up it so sorely needed. With interesting times ahead, now is a great time to reevaluate your loan and examine the marketplace. Stay tuned and watch this space, because the home loan battle lines are only just being drawn.

Compare home loans at mozo.com.au

As GFC mud was slung in the States, Congress ducked for cover behind its credit card reforms — which were passed in May last year and have just come into effect. Whether similar changes should be expected in Australia remains uncertain, and will be some time off if they do eventuate. As far as the US reforms go, there’s both good and bad news for consumers.

On the upside, random interest rate changes have been abolished, as the centrepiece of the reform. How and when banks can raise interest rates is now tightly regulated, and they must give at least 45 days’ notice before increasing their interest rates. Furthermore, a review of penalty rates and fees is scheduled for later this year.

The major lenders have responded, however, by hiking up fees, and inventing new ones. So your balance transfer with JPMorgan Chase will now attract a 5% fee. Let’s hope that one doesn’t emigrate down under.

And credit card rewards have also been hit with various creative penalties, such as no points accrued on purchases if the customer is late with a payment (courtesy of American Express co-branded cards).

One of the big wins (for consumers) is restrictions on credit limits, and more stringent credit cards application processes, with lenders tightening up access to credit. Which may seem rough to those struggling to find a provider, but will hopefully lead to fewer borrowing more than they can afford.

Australia is usually a couple of years behind American credit card trends (for example, the 0% balance transfer), so it’ll be interesting to see which, if any, changes trickle through to the domestic market.

compare credit cards at mozo.com.au

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

Perhaps it’s the looming prospect of a few days break or maybe a few too many cups of eggnog at the Christmas party, but the banks’ proverbial sleighs really do seem to be a few reindeer short at the moment. Westpac’s banana smoothie video is an obvious case in point, but our video parody, Westpac Bank Bananas really says it all. With little more to add to the debate I decided to cast a wider net and look at what happens when the banks get a little carried away with their ideas on customer service.

I strolled down to a Westpac ATM and, upon instructing the machine to dispense my last $20, was greeted with an additional screen asking if I wanted the personal details of the bank manager. Partly intrigued and mostly bored, I wasted no time in pressing yes. I found out that the manager, Peta Cruickshank is, amongst other things, “pulling out all the stops”, “for blitzing fees” and is “dedicated to giving me fast answers”. In need of a fast answer as to what to buy my Dad for Christmas, I decided to call Peta on her mobile number. It went straight to: “you have reached the voice mailbox of ‘private number’. Beep”. She still hasn’t got back to me. Personal touch indeed.

It seems that this strive for customer service is rearing its ugly head at every turn. A friend who works for the financial services union told me that an unnamed bank’s renewed customer service push has seen quite a few complaints from staffers. Apparently the bank calls customers at random and asks them how the service was last time they were at the bank. If the rating is under 9/10, it impacts the staff member in question’s performance review. Here’s a particularly disturbing example: a customer was attempting to withdraw money and the ATM jammed so he had to go in to the branch to sort it out. The staff were very nice and helpful, but the customer gave the bank’s customer service a ’0′ due to the ATM inconvenience. The helpful staff member got given a ’0′ and a mark on her customer service record despite the incident being a result of a faulty machine. Don’t you just love it when the system works?

As an aside, would anyone else who’s seen the Commonwealth Bank’s most recent TV ad actually prefer their branch to have a basketball hoop instead of a customer service promise? Customer service should be a given and a basketball hoop would be a nice way to bide the time while the old woman in front of you counts change at the teller. Speaking of which, a male colleague of mine walked into a Commonwealth branch the other day, spoke to a young female teller and upon completing the transaction was asked to rate her out of ten. Cue awkward pause. He smiled, told her “11″ and bemusedly strolled off.

Ratings out of 10? Mobile numbers? Perhaps these lonely bank managers are fostering some kind of dating scene at branch level. Christmas is a time to spend with people you love after all!

Compare banks at Mozo.com.au

It’s not yet been a week since Mozo’s VICE Presidential race kicked off, and already Australians have confessed to a quarter of a billion dollars worth of spending sins. Who knew you were all so profligate?

Well, we kinda suspected…

But the big surprise has been the vices themselves, with Gadgets taking the lead on $77 million, closely followed by Shoes & Clothes.

Seems we’re a nation of chic geeks.

So what ever happened to the party-hard Aussie yobbo? After a strong start, Booze has drooped to a groggy $15m, and Ciggies are only coughing up $4.5m.

Of course, it’s early days yet, and having stepped over more than one xmas reveller on the way to work this morning, Mozo thinks there are a few sinners holding out on us…

So pop an aspirin and join the race to become Australia’s first VICE President.
http://mozo.com.au/vice-calculator

That five grand – and limitless kudos – could be yours!

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