Banks reap billions from zero-interest ‘lazy’ accounts
Retirees with savings accounts beware. Are you missing out on top rates from “deposit deception”?
It’s a cunning but everyday strategy aggressively of the big banks – possibly all banks – to cut their costs through branch closures and sackings and redirect the savings into products, including housing loans, that make money.
On the other side of the banking ledger are savings accounts offering interest growth on savings, which many seniors depend on to fund their retirement.
Opening a savings account used to be simple. The longer you left your money with the bank, the higher the return, and even the simplest at-call savings account offered a reasonable return.
Not so, now.
There are term deposits, which can offer good returns but require vigilance as banks shuffle interest rates.
At-call accounts are either non-interest bearing or offer a next-to-zero return; while new saving products lure savers with bonus rates but can require them to navigate a maze of convoluted conditions, including penalties for withdrawals, to get the bonus. One mistake and you miss out.
The banks are making billions of dollars out of savers who leave their money in non-interest-bearing accounts, withdraw funds early from term deposits, or fail to comply with the bonus account conditions.
It would be fair to say many savers are not aware they are missing out.
There are calls for the banks to be more transparent.
The big four banks collectively hold more than $320 billion in non-interest-bearing deposits, accounting for almost 20% of the $1.7 trillion in deposits across all Australian lenders.
An old Australian saying describes this as “money for jam” or “money for old rope”.
The Australian reports that these so-called “lazy deposits” are now the key to cheap funding, comprising around 10% of each of the big four’s total deposits.
While the banks kept branches and ATMs open there was some excuse for paying for that cost from savings returns.
But that’s no longer the case in the digital age and, while savers are missing out, the banks are also paying for it as new “players” enter the deposit market offering higher rates and simpler accounts with fewer conditions.
Political pressure
As well as that, the banks now face political heat, and not just over branch closures. Our regulators and politicians have woken to consumers concerns that they have had enough of the banks’ “pea and three shell trick”.
The Australian Competition and Consumer Commission is demanding the banks simplify their offerings after discovering, in inquiry findings published in late 2023, that two-thirds of customers were failing to earn the top interest rate.
New figures published by NAB – the only major lender to be forthcoming with its data – reveal little improvement.
Shadow Minister for Communications, Aaron Violi, raised the issue at Parliament’s economics committee, describing it as “deposit deception”.
He’s calling on the banks to be more transparent and remove barriers so more than 90% of account holders receive the "bonus” interest they sign up for.
“I’m calling on the banks to review their practices to ensure any hurdles to ‘bonus’ interest are achievable,” he said.
“There is a clear issue with the bank's hurdles, and I am calling for changes to be made to ensure Australians are not being ripped off.”
CBA boss, Matt Comyn, told the committee, “We’ve put a lot of effort into alerting customers, such that we can maximise the proportion of customers who are getting that bonus interest.”
Public responses by the banks to the committee hearings can be found here.
Related reading: APH Bank Review, The Australian 1, The Australian 2
Disclaimer: This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives.
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