Want better interest rates on your cash?

The banking sector has changed rather fundamentally in recent years. And with that change, retirees have fallen out of favour, becoming the least attractive customer for the big four banks.

For most, that means you don’t get offered the highest interest rates on your cash anymore. And the only thing to do is look further afield to the mid-tiers and online banks if you want the best interest rates.

Over the past decade, the banking industry has been forced by both the market and the regulators to change its business models. Transaction account fees, mortgage interest, trailing investment management fees, and term deposit interest, once reliable sources of income for banks, have waned or been regulated out of the picture.

In this new era, our major banks are primarily focused on lending money for profit, particularly to homebuyers and businesses. And once you’re over about 50 years of age, you are not an ideal candidate for borrowing money, simply because you need 20-30 years of employment to pay down a mortgage these days.

The implications for customers nearing retirement are significant. If you’ve paid down, or nearly paid down your mortgage, and your need for active borrowing is decreasing or even behind you, you are a much less desirable customer for the banks, especially the dominant players in the industry.

That means lower interest rates on your cash, fewer perks, and little or no access to credit as you age.

There are three big banking myths that I’d like to reset your views on today, so you can go about putting in place banking strategies that are more relevant to modern retirees.

As you approach retirement, it's crucial to reassess your banking needs and explore alternatives that better align with your changing financial landscape. There are a few good places to start.

Contrary to conventional wisdom, paying off your mortgage entirely may not be the most financially astute decision as you near retirement.

The day you settle your mortgage is the day you stop being an attractive banking customer and usually the day you start to lose access to certain banking perks and benefits like credit card with bonus points and free insurance offers.

Instead, consider a strategic reduction of your loan balance, maintaining a small outstanding amount to ensure continued access to credit cards and exclusive deals preserved for lending customers.

Retirement often comes with challenges in obtaining or upgrading credit cards. In the current regulatory environment, the big banks are hesitant to recognise retirement income as a valid income stream, making it difficult to secure new credit cards or increase existing limits.

It might be worth conducting a comprehensive evaluation of your credit card setup before you retire, ensuring you are well-positioned to handle changes in circumstances, including something as drastic as the death of a partner.

If you are both operating off one credit card, it is likely only one of you has an active credit rating, and that the other could be placed in a very difficult position if the account holder were to die.

While loyalty to a bank built over decades is commendable, it might not be the most financially prudent choice, particularly in the current economy.

Right now, the big four banks are increasingly focused on lending to younger customers seeking home loans, and as a retiree, you may find yourself overlooked for attractive interest rates and benefits because they know you cannot borrow more.

In contrast, there is a range of mid-tier banks who are offering much stronger interest rates on high interest savings accounts if you’re looking for a return on your cash.

You will probably have to switch banks to benefit, though. And some banks will offer additional benefits if you move both your transactional bank account and your high interest savings account.

The reality is that loyalty to the big four banks can cost you money and limit your financial options in the long run.

Rather than completely paying off your mortgage, strategically reduce the balance to maintain access to banking perks and credit facilities.

This approach allows you to remain a desirable customer and enjoy exclusive offers, safeguarding your financial flexibility.

A proactive review of your credit card setup is essential, ensuring it's future-proofed for changes in income and circumstances.

Evaluate whether your credit limits meet your lifestyle needs and whether adjustments are necessary to navigate the dynamic nature of retirement.

And, if you can, do it before you retire rather than after. Banks need to use your payslip to validate your income. Retirement income statements don’t cut the mustard.