the mozo blog

Last week’s dramatic rate cut of 50 basis points by the RBA saw savvy savers scrambling for the best interest rates. But before you tie the knot with a charming new savings account, be wary of the “honeymoon hoax”.

As base deposit rates start to follow the declining cash rate, banks gloss over their low savings account ongoing rates with attractive ‘honeymoon’ rates that last only for a few months. Once the “honeymoon period” ends, usually within 4 – 6 months, savers are jilted, and suddenly stuck with stingy ongoing rates.

Since 2009, the number of banks that have pulled this dual-pricing trick has doubled, while the gap between the average honeymoon rate and the standard rate has also increased. For example, ANZ’s Online Saver account currently features a honeymoon rate of 6% but the standard rate is just 4.25%, a 1.75% difference. In October 2011, this gap was 1.50%.

What’s more, the length of the average honeymoon rate period has been cut from 5 months to 4 months since the RBA rate cut last November, which means your “charming” new savings account will show its true colours faster.

Indeed, some of the best savings accounts don’t offer “honeymoon rates” at all.

Take the UBank USaver account for example. This account consistently tops the high interest savings account market, and you’ll receive its 5.51% ongoing rate as long as you deposit $200 or more every month via an automatic savings plan.

But if you don’t want your savings to be tied down to any conditions, the Railways Credit Union (5.80%), RaboDirect (5.40%) and Newcastle Permanent (5.36%) are also fine suitors for your money by offering competitive ongoing rates free of restrictions.

It’s interesting to note that RaboDirect’s high interest savings account offers a “honeymoon rate” of 6.01% for 4 months on top of the already competitive 5.40% base deposit rate, so if you must squeeze a few more dollars out of your savings in a short amount of time, this is the account to pick.

If you’re willing to be a rate tart and are prepared to move your money around every couple of months to get the best rate, then go for the high honeymoon rate offers. If not, it’s best to stay faithful with an account that is going to offer you a high ongoing rate that will see you towards your savings goal.

Head to Mozo to find out where the best savings accounts are hiding!

Savers should act quickly before the 50 basis point cut by the reserve bank flows through to deposit rates according to the latest data from Mozo’s rate chasers.

Right now, banks are competing aggressively for short term funding, and the best rates are to be found on deposit terms of six months or less.

The top six month term deposit rates are sitting level with the top variable savings account rate of 6%. If you can act quickly, savers who can switch their money within the next few days to a term deposit should be able to lock in a rate of 6% and effectively beat the rate cut for the next six months.

Here are the top six month term deposit rates*
1. UBank 6.01%
2. ME Bank 5.90%
3. Citibank 5.85%
4. Bank of Queensland 5.80%
5. Heritage Bank 5.70%
* Based on a $25,000 deposit.

Compare term deposits on Mozo and save!

Lucky I didn’t promise to eat my hat.  I said in my last post that I had no doubt the RBA would cut by only 25 points, and they were more aggressive than I gave them credit for.   I’m very happy to have been proved wrong.

I would still love to see someone come out strongly and pass on the full cut to home borrowers, but I think the chances are pretty slim when we are talking about 0.5%.  It would take a lender to believe that such a move would pay for itself in new business volumes and increased retention.  That kind of argument rarely gets much traction inside a bank, especially when new loan volumes are down and existing big bank customers have themselves convinced that it’s too hard to switch away.

And, sadly, when it is much easier to believe that customers will take the pain – because not enough people switch – and that their competitors will play along.

Yesterday, NAB gave us a very clear sign of the banking herd mentality.  NAB was the first major to the cut rates this week, and yet they have promised to have the lowest of the big four standard variable rates for all of 2012.  They knew that if Commonwealth Bank passed on 42 points or ANZ 43, then this would no longer be true.  But NAB was pretty confident that neither of those was going to happen, and hence they were able to make a pricing decision that sees them undercut the other three before the other three had even made their announcements.  It’s the Bill Shorten effect (“I don’t know what the PM said, but I agree with her”), in banking.

And of course, this morning the Commonwealth Bank confirmed their assumption by passing on 40 basis points.

NAB may have demonstrated a different attitude towards its customers when it comes to exit fees and penalty fees, and they were the first to deal with the issues of credit card reform.  But when it comes to variable home loans rates, the breakup now only goes so far.  And perhaps when it comes to interest rates in general, given the fact that they have cut rates on savings accounts by the full 0.50%, and the rates on most credit cards by only 0.25%.  They are still part of the oligopoly.

Andrew Duncanson is the Research & Insights Director at Mozo.

UPDATE: The RBA has cut the official cash rate by 0.50 per cent at its meeting today.

It’s the first Tuesday of the month, and so one would normally  be writing something like “all eyes are on the Reserve Bank…”.  But with the banks (and ANZ in particular) at pains to distance their pricing decisions from the RBA, where should we really be focussing our gaze?

Well first up, regardless of what the banks do at the margins, the Reserve Bank still wields significant influence on retail interest rates.  And there is no doubt, at least none in my mind, that the Reserve Bank will cut rates by 25 basis points this afternoon. It has been clear for some time that the non-mining economy is struggling.  It is now also clear that the economy overall is not as strong as the RBA hoped. Inflation in particular, which is the main policy target of monetary policy, has come in at a level that allows the RBA some room to move. So move they shall.

I don’t expect to see 50 basis points, however, for two reasons:

• That inflation number that so much commentary has focussed on wasn’t really as soft as the headline rate suggests.  There were some significant price falls this some areas (as consumers of bananas and TVs will tell you), offset by some strong rises in others (as consumers of schools and drugs will tell you).  The RBA is clever enough to strip away all the noise and look at the real trends in prices, and when they do they will see an inflation rate that’s under control for now but certainly not soft.
• I don’t think that the RBA Board are likely to follow months of inaction and caution (for which they’ve attracted some very strident criticism) with a sudden shift. I think it is far more likely that they plan two consecutive cuts of 25 points – easy does it, take your time, gather a little more information.

So that’s the RBA, but as we know, the banks dance to their own tune now.  So what might this actually mean for borrowers?

ANZ has a big influence on how things play out now.  They have moved twice on their own, but only by 6 points each time.  Theirs is clearly a strategy to make small, regular pricing changes on a timetable of their own choosing, and to ride out the backlash.  They want to free up their pricing hand.  If they succeed, home loan pricing may end up similar to petrol pricing: expensive, much discussed and much distrusted, but accepted as regularly changeable.

Most of the other banks have moved between 10 and 15 points in response to the ANZ first rise.  So by making only a small second rise, ANZ have really only caught up to the others and we are actually at a point where the banks are looking for a new lead.  So far, we’ve had some pretty clear warnings from several banks that they won’t pass everything on.

The easiest thing for a bank to do would be to wait for Friday next week and see what ANZ announces.  (They may have to wait until very late on Friday, if last month is any guide.)  I expect a large number of banks will do so.  And I expect that we will be seeing cuts of the order of only 15 out of a possible 25 basis points, disappointing plenty of home borrowers.  And plenty of business owners too, who are also unlikely to get much joy.

I would like to see some lenders make their own call instead of taking the easy option.  I think the stage it set for bold bankers to pass on the full 25 point cut this week, to try to seize the initiative and attempt to seize a few extra customers. And to put the pressure on ANZ and those who wait to follow their lead next week.  It is a tactic that could pay off in this climate, where slightly dented margins could be offset by increased brand equity and increased new business and increased retention.  So come on challenger brands, come on mutuals, come on nab, how about it?

But perhaps there is another interest rate decision, often overlooked at RBA time, which deserves attention:  what will banks do with deposit interest rates on savings accounts and term deposits?  These are increasingly important to many, as investors remain wary of the markets and households continue to de-leverage.  But they are also critical to borrowers, because the rate that banks pay on new deposits is actually the single biggest driver of the cost of funds behind variable loans.

And it is hard to tell quite how the banks will cut into deposit rates.  Since November last year, while the RBA rate has fallen 50 basis points, the leading headline rates on high interest savings accounts have generally fallen by between 25 and 50 points.  In Term Deposits the leading rates have fallen far less, with the best rates up for terms up to 1 year having fallen by only 30 points or less.

The pressure to keep rates up comes from the top of the rates table, which essentially means UBank.  Their savings account rate followed the RBA down 50 points last year, but from a very high starting point.  And their 6 month and 1 year term deposit rates are currently higher than they were just before the November RBA rate cut.  Everyone else is struggling to keep up.

So while nab takes the high moral ground in home loans by claiming the lowest standard variable rate of the Big 4, it is actually the aggressive deposit pricing of nab’s own subsidiary that is driving deposit rate competition and contributing in part to the increase in home loan funding costs across the industry.

So perhaps all eyes should really be on UBank, and their deposit rates.  Depositors will be hoping for a small cut; borrowers should be hoping that they pass on the full cut.

Andrew Duncanson is the Research & Insights Director at Mozo.

This is a round-up of rates in April and some may have changed since the time of writing.

Home Loans: ANZ again raised its variable home loan rates by 6 basis points. The bank justified the move by pointing out that other lenders had raised their rates by more than its two increases since its first 6 basis point increase in February, while funding pressures continue to build. The only other Home loan lenders to increase their variable rates in April were Illawarra Home Loans, Queensland Country Credit union and Beirut Hellenic Bank.

Fixed rates were relatively stable throughout the month with only minor variations in the average rates across the market, although ANZ saw fit to boost their 3 year rate by 14 basis points. UBank had the cheapest 1 year fixed rate home loan in March but this month their 1 year rate is only 4th best at 5.97%, while the cheapest is now offered by West Australian based UniCredit at 5.79%.

Personal Loans: Personal loan rates are edging their way up with the average variable rate on a secured loan up 0.02% over the month (to 10.71%), and the average fixed rate, again for a secured loan, up 0.09% (now 10.63%). ANZ lifted its unsecured variable rate 9 basis points to 14.99%, but that wasn’t sufficient to change the average, which remains 14.12%.

Credit Cards: Credit card rates are also increasing with ANZ leading the charge by increasing the purchase rate on all of its personal cards by 15 basis points.

The product launch of note during the month was NAB’s new platinum card with flybuys rewards. The NAB flybuys Rewards Card has a balance transfer rate of 4.99% for 6 months, an ongoing purchase rate of 19.99%, and a relatively low annual fee of $65, yet still offers the platinum card perks such as several types of insurance and access to a concierge service.

Term Deposits: On average the 6 month term deposit rate rose slightly during the month from 5.13% to 5.26%. However the best rates for the term have not changed: UBank has the best at 6.01% and ME Bank are offering 5.90%.

Rates for longer terms have been moving down, only slightly during the month but over the last year have been significantly reduced. While the RBA has cut rates by 50 basis points the average one year rate is down 65 basis points to 5.12%, and the three year average rate is down 72 basis points to 5.17%. This is likely to be a combination of the banks’ funding cost pressures being passed on to savers combined with the expectation that the cash rate will fall further this year.

Savings Accounts: The Commonwealth Bank made its main savings products more competitive by increasing rates. Its GoalSaver rate is up 15 basis points to 5.65% and the 3 month introductory rate on its NetBank Saver was increased by 10 basis points to 5.60%. HSBC also increased the 4 month introductory bonus rate on their Serious Saver by 10 basis pints to 6.05%, but the ongoing rate after that remains 4.75%.

While not a savings account, we were sad to see the demise of one of the Mozo team’s favourite bank accounts, NAB’s Gold Banking. The account was one of only two that did not charge for overseas transactions and the $10 monthly fee could be waived if you were able to make deposits totalling $5,000 or more each month. NAB’s Classic Banking account is still quite good with no monthly account fees but the bank does seem to be moving away from the products that made it stand out from the rest of the major banks.

As can be seen from this month’s Rate Chaser update the big banks are busy repositioning themselves by adjusting their rates and product ranges. ANZ in particular has been making a strong case through the media that it needs to recover increased funding costs, but how long will its customers tolerate higher rates on lending products?

The RBA meets again tomorrow and a cut is all but certain. Given the pattern of out of cycle increases we’ve been seeing lately it will be interesting to see how much of any cut actually ends up in the hands of consumers.

Rest assured the Mozo Rate Chasers will be keeping a close eye on things to check out our website for the latest Reserve Bank Interest Rate updates.

If you’ve been watching the telly lately, you would most certainly have heard British comedian Dawn French spruiking Coles’ revamped flybuys loyalty card and its “world first” my5 offer. But what exactly is my5 at Coles? In short, the supermarket giant is giving flybuys customers 10% off FIVE products of their choice whenever they spend over $50. So not only will your everyday purchases go towards your next holiday, but you’ll also be able to trim your weekly grocery budget. But is it just another marketing stunt? Or is this a genuine cause for celebration for consumers? To find out, Mozo dons the monocle to play detective and heads to the supermarket aisles…

How do I sign up for flybuys?

No need to rush out to your nearest Coles supermarket just yet. Coles is posting its new flybuys card to 8 MILLION Aussie households, so chances are, it will arrive at your doorstep shortly. Once you receive your shiny and new, silver Coles flybuys card, simply activate it on the Coles website and you’re ready to start racking up flybuys points.

However, things get tricky if you want the Coles my5 discounts to kick in. First, you’ll need to nominate 5 product groups. What’s a product you group you ask? Simply think of them as separate shopping aisles based on product type, size, brand or weight. Keep in mind that you can’t change product groups once your card has been activated, so choose carefully.

Next, you’ll need to select 5 individual items for each product group, potentially giving you a pool of 25 items that can be discounted whenever you shop at Coles. The my5 program covers a fairly comprehensive list of everyday goods but you must purchase the exact product to receive the 10% discount. For example, Coca Cola 1.5L varieties are covered under the my5 program but 1.25L varieties aren’t. Also note that gift cards, iTunes vouchers and tobacco purchases aren’t covered under the Coles my5 scheme.

How are Coles my5 discounts calculated?

Discounts only apply when you spend at least $50 in one transaction, after any savings and discounts have been added. You can shave 10% off 5 items within a single product group, or 5 items spread across the 5 product groups. If you purchase more than five items from a single product group, the discount will apply to the five highest value items. But remember, multiples of the same product are considered as separate items.

How much will I save?

To answer this, Mozo put together 2 separate shopping baskets to see if you’ll save more on common goods or on fresh food. The baskets are based on the weekly requirements for a typical Aussie family of 4.

Household goods list

• Huggies Jumbo Nappies 64 – 108 packs
• Finish Quantum Dishwasher Tablets 20 packs
• Omo Small & Mighty 2X Concentrate Laundry Powder 5kg packs
• Pantene Shampoo and Conditioner 350mL packs
• Kleenex Toilet Paper Cottonelle 12 packs

TOTAL BASKET PRICE: $33.59

Food list

• Berri Juice 2.4 L
• Bulla Ice Cream 2L packs
• Coles Beef Porterhouse Steak (approx 500g)
• Coles Chicken Breast Stir Fry (approx 550g)
• Helgas Continental Bakehouse Wholemeal Grain Loaf 850g

TOTAL BASKET PRICE: $39.19

So how much will you save? Not much in actual fact. If you buy most of your household items at Coles, you’ll save $3.36 each week. You’ll save marginally more if you purchase fresh produce, which will see an extra $3.92 in your wallet every week. But remember, the Coles my5 offer ends on 31st October 2012, so the savings will only last 6 months. With our baskets we’ll manage to save $87.33 over 6 months on our household goods and $101.89 for fresh food.

Is the Coles my5 offer worth the hype?

Most shoppers will unconsciously put more items in their trolleys every week, knowing that they’ll save 10% on 5 items, so the Coles my5 offer will only work if you maintain your shopping habits.

Given that my5 considers multiples of the same product as separate items, you’re better off purchasing expensive items that you don’t buy often, rather than smaller products that you buy on a regular basis. You’ll see the biggest savings for bulk items so larger families will get the most out of the Coles my5 program.

We won’t say that Coles’ latest promotion is a scam but the savings are certainly less impressive than what the marketing hype suggests. What is certain is that the supermarket wars are now officially in overdrive. What the Freshfood People over at Woolworths come up with in the coming weeks is anyone’s guess…

Wow.   At 5:18pm on a Friday afternoon, ANZ announced the result of their April interest rate review:  another increase of 0.06% in variable home loan rates and small business lending rates.  This is in the face of significant public anger, mounting political pressure, intense media scrutiny and the strong likelihood of an RBA cut in a couple of weeks.

In recent years, normal bank practice would have been to wear any cost pressures until that next RBA move.  But ANZ really is determined to bust that connection between the RBA rate and their home loan rates.

Their announcement quotes continuing pressure on funding costs as the reason, particular for term deposits.

But it also talks at some length about how they have considered their customers:

• they waited until they were sure the cost increases were sustained before passing them on;
• they have paced out the increases – 6 basis points in February and another 6 now;
• they are the only bank with a transparent process for reviewing rates
• their rates haven’t gone up relative to the market since they broke from the RBA timetable

All of these are true.  But sadly for ANZ, I don’t think their customers will be listening to those sorts of arguments.  Customer sentiment scores collected by Mozo over recent months clearly shows the Big4 falling further behind smaller home lenders, and ANZ in particular, mostly centred around early February when the ANZ last made a unilateral move.  Customers see them putting prices up, seemingly at will.  They feel powerless.  And worse, they don’t believe for a moment that the banks care.

And I have to say that to make an announcement after 5pm on a Friday, on an issue as sensitive as this, is a very questionable choice.  It will not help how people view ANZ, or the big banks in general.

Andrew Duncanson is the Research & Insights Director at mozo.com.au

I woke up this morning to a news feed packed to the rafters with calls for, and speculation about, a 50 basis point rate cut from the RBA next month.

Are these people serious?

The RBA has tiptoed cautiously all year, watching closely but holding fire. Just 9 days ago, they met and chose not to move rates.  What has changed since? Nothing, apart from the number of increasingly shrill calls for a cut – although admittedly they are coming from everywhere.  When I last checked, the Cash Rate was not a democracy.  And I’ve never seen an RBA Board minute that said, “Board members gave great consideration to the increasing weight of media commentary…”.

It is highly typical of the news cycle, and of markets, to overreact. Months of steady interest rates in this climate will inevitably lead to panicked calls for big cuts, and to speculation that the RBA might act accordingly. (And of course many if these voices are stating a case for 50 points, purely to try and increase the chances of getting 25.)

But I think everyone needs to have a cup of tea and a lie down. That sort of behaviour is absolutely NOT typical of the Reserve Bank. They steer a big ship, and you turn the wheel slowly. Months of holding a steady course do not suggest a sudden tug at the wheel, with the possible exception of a certain trans-Atlantic liner exactly 100 years ago this weekend.  We may be experiencing some rough seas, but there are no icebergs in the Australian economy and this is not the Titanic. Captain Stevens does not panic. He will turn the wheel gently, down 25 basis points, in May.

Passengers, please return to your cabins.  Now, how about that cup of tea…

Andrew Duncanson is the Research & Insights Director at Mozo.

Did you know Australians spend more money each year on confectionary, cakes and biscuits than on vices like beer, cigarettes and coffee?

The average Australian household spends $1,032.20 each year or ($19.85 a week) on sweet indulgences like chocolate, lollies, cakes and biscuits. This is almost twice as much as we spend on fresh fruit (just $9.60) or vegetables ($10.79) each week. And it’s also a lot more than we spend on sporting and gym fees ($9.55) each week.

That’s a whopping $8.83 billion a year that could be put towards bulging up our bank accounts instead of our waistlines.

We’ve calculated that by giving up a few sweet indulgences, the average household could save an average $1700 in a year – that’s a new flat screen TV or family holiday to the Gold Coast.

But keep this habit going for a decade, and put the money into a high interest savings account, you could potentially have a nest egg of $23,000 –enough for a car or a house deposit. And now is a great time to get into this much healthier savings habit. Mozo’s latest data shows that banks are actively competing for deposits with higher savings rates on offer.

Top 5 savings rates include:

UBank USaver 6.01%

Rabo Direct High Interest Savings 6.01%

ANZ Online Saver 6.00%

Citibank Online Saver 6.00%

HSBC Serious Saver 5.95%

Source: ABS household expenditure survey 09-10

Yesterday’s decision by the RBA to keep rates on hold at 4.25% was bad news for Australia’s home owners who were hoping for some relief after the recent out-of-cycle rate changes passed on by the nation’s largest home loan lenders.

Analysis by Mozo’s Rate Chasers reveals that three quarters of the nation’s home loan lenders followed the ANZ’s lead and raised their standard variable rates in February and March.

It was the largest out-of-cycle rate change in the Australian home loan market since the Global Financial crisis started, with lenders increasing their standard variable rates by an average of 10 basis points – even more than the original ANZ rate change of 6 basis points.

Home loan lenders who bucked the trend and kept their rates on hold to capitalise on customer dissatisfaction with the Big 4 banks include mutuals such as Teachers Mutual Bank and Community First, online lenders and challenger banks such as MyRate and ME Bank.

All eyes are now on the ANZ, due to make its monthly rates decision on Friday the 13th!

Fixed home loan rates continue to move upwards

There is ongoing movement in fixed home loan rates and this trend is likely to continue.

25 lenders increased their one year fixed rates in March by an average of 19 basis points, lifting the average one year fixed rate to 6.25%. The average one year fixed rate is still nearly 50 basis points below the average variable rate of 6.74%, but this margin is expected to shrink further in April.

Savings rates start to climb

For the first time in 2012, savings account rate increases outpaced decreases sparking a new round of competition for deposits. Among the providers to increase savings account rates include Commonwealth Bank, Westpac and St George who are trying to  compete more effectively against the direct providers and challenger banks who are aggressively acquiring market share right now such as UBank and RaboDirect.

And in the term deposits market, 15 providers lifted their one year term deposit rates in March by an average 29 basis points.

Head to Mozo for full market comparisons of Australia’s home loans, savings accounts, term deposits and more.