the mozo blog

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.

Lenders say they are doing it tough. Demand for new loans has dried up, we’ve had all the recent problems with the cost of funding, and there were reports recently showing that people are repaying their loans faster than ever. All this points to tough times for home lenders, and the point has even been picked up by APRA who have warned banks against loosening credit quality in order to make up some ground. Doing that of course is a false gain and you likely end up wearing even greater cost down the track when arrears and defaults go up.

There are some patches of sunshine amid the gloom, though. The feedback we are getting from lenders is quite polarized. The majority of lenders and struggling but there are a few who are quite pleased with how things are going.  And these are the low cost online home loan lenders, the likes of UBank and loans.com.au, and individual product lines like the online product from Bankwest. They are all still aggressively chasing new business and seem quite happy with what they are getting.

So while the traditional lender is finding it very hard, those that are adapting their business model towards low cost and online do seem to be having some success at chipping away at market share. We think it is just the beginning of the new world, and we predict more and more of this in future. Those lenders who adapt their model can continue to gain business, and those stuck in the last decade will not.

Another way that the home loan market has shifted of late is that there seems to be less seasonality. Traditionally, home lenders focused their marketing efforts on a spring and autumn campaign.  Some are now saying that this is not so much the case any more.  And this is partly because the loans market is now not so focussed on new home purchases, and is much more about refinancing existing loans.  So that’s where the online guys are really playing – UBank in particular – in trying to win people across from their existing lenders.

And that changes the dynamic quite a bit, because lenders need to go out and attract people to the savings they could make rather than just waiting for them to come looking for a loan because they need one.  This might be the point in the market where the big bank brands struggle to attract customers, because of the negative public sentiment that has built of over recent times.  This might be the point where we see the home lending climate change, directly caused by the actions of the big banks.  On the flipside, they also have many more tools at their disposal to try to retain existing customers – including deep pockets and a well-oiled cross-sales machine.

Pack your swimmers and an umbrella.

Andrew Duncanson is the Research & Insights Director at Mozo.

After all those years slogging it out as a frugal student, you’re finally cashed up after landing your first job. Now is the time to take care of your new found wealth, with our ultimate mix of tips for financially surviving your first job:

1. All work and no play makes you a dull kid!!
It’s your first job, so of course you’re going to want to spend that first pay packet. For the first month give yourself some freedom, just don’t get into debt! Go enjoy yourself. Shop around for some funky new clothes (chuck in some professional work attire), buy that cool iPad and hit up your trendy local bars and clubs. But have an end date in mind for when the spending stops and the savings begin (no more than one month).

2. Good habits, mean a great time on the weekend
Forget the idea that budgeting is all about what you can’t have. It’s actually about planning for what you can have! Put aside money for those ‘meh’ daily expenses like food, drinks and transport and for those living out of home, rent, groceries and utilities. Of course you’re still a young 20 something-year-old and need to have fun, so set aside some cash for the big things AKA Saturday nights out. Use Mozo’s budget calculator to get a personalised summary of your spending!

3. Avoid the big bite of ugly debt
But you’ve always wanted that super fast car. Well, before you go out and get that car loan, consider the amount of interest you’ll be paying on that hot ride. Car loan interest rates can reach up to 15%! A car only decreases in value, and the interest on top of this will mean you’re paying big bucks over the life of the car loan. One of the golden rules, according to Colin Williams from Humble Savers, is avoiding getting into debt for purchases that fall in value. He suggests saving for your big purchases, to give yourself time to really consider what you’re buying.

4. Build up your savings for something big
Set up a regular savings plan and you’ll be closer to that dream holiday with your BFF’s. Using Mozo’s Savings Goal Calculator we found that if you deposit as little as $25 a week into a savings account with an ongoing interest rate of 5%, you’ll end up with a balance of $1,337 after one year. Hello Koh Samui!

Establishing a regular savings habit will especially come in handy later on down the track when you decide to move out of home or buy your first pad. Most home loan lenders and landlords now require ‘proof of savings’ as part of the application process.

5. Put money into an emergency fund
While your savings is important to give you that much deserved pleasure time (mojitos at sunset), it’s wise to start a rainy day fund in case of an emergency. Make sure you choose a savings account that you can gain access to quickly because you never know when your car will need repairs or when you might need to move out quickly (escape that annoying housemate!). Most financial experts recommend putting aside around $1000.

6. Use credit cards with caution, seriously!
You may be able to buy those sexy Jimmy Choo shoes online from Bloomingdales but it doesn’t  mean you should! Credit cards could get you in real trouble before you even receive your first pay check. If you really need a credit card get one with a low standard interest rate and a low credit limit so you’re not tempted to spend big. To avoid the slap of credit card interest rates and fees, you can opt for using your own savings on a MasterCard debit card or Visa debit card.

7. Check when you need to start paying HECS
It’s so easy to finish uni and forget that you actually have a $20,000 debt. If you’re earning over 45K you’ll have to start making regular repayments. So make sure you inform your work, so you won’t have to pay anything back at tax time! Even if you don’t earn over this amount you can still reduce your HECS debt. If you make a voluntary repayment of $500 or more, you will receive a bonus 5% off the payment towards your debt.

Money is an essential part of enjoying life, so don’t expect to save every penny in your first job after uni. But get into some good financial habits and you’ll have the best of both worlds. Money for play time and money for the future!

Mozo released some research last week on ATM Direct Charging – this is the fee that the ATM Operator charges you when you go to an ATM that’s not from your bank.  It showed that $2.50 is becoming the new $2, at least among the independent ATM networks.

For full details read: The ATM Trap: $600 million in fees.

Now we think these developments are a failure of the ATM Direct Charging reforms.  The RBA said that the reforms were supposed to ensure that:

“…fees paid for cash withdrawals are more transparent and are subject to competitive pressure…”

Source:  http://www.rba.gov.au/qa/atm.html

If consumers have no way of choosing which ATM to approach outside of their own bank ATM then that is hardly transparent, and competitive forces will not operate in the ATM fee market.

In fact, the former CEO of Customers told analysts earlier this month that he was “ … very pleased with the elasticity of the direct charge…”.  That’s a nice way of saying “not subject to competitive pressure”.

What is of great concern is that a joint RBA / Treasury taskforce examined competition and regulation in ATM fees last year, and reported to the Treasurer in June.  But 9 months later, the Treasurer has not released the report and has made no public statements in response to it.  His office told me that the Treasurer is “still considering it”.

We are calling on the Treasurer to release the report, respond to it, and put an end to what could be the thin edge of the wedge.

In the meantime, here’s some transparency so people can make informed decisions:

●      NAB ATMs charge $1.50 for a withdrawal – less than any other network.  If you can’t get to an ATM that’s connected to your bank, go to a NAB ATM.

●      Customers and Cashcard ATMs typically charge $2.50 and are best avoided.

●      Be wary of Bank of Queensland, Suncorp, Bendigo and Citibank – these guys have outsourced to Customers or Cashcard and in some locations you will be hit for $2.50.

●      And whenever you can, walk the extra distance to an ATM connected to your institution, or get cash out via EFTPOS – rather than pay to access your own money.

Last week the RBA released a review of how the credit card market has changed in the last decade.

Back in 2002, the RBA restricted the interchange revenue that card issuers could earn on each transaction.  Their review outlined how this has cut value of credit card rewards schemes.  Well I think that was pretty obvious some time ago.

Of course the reforms were about making the pricing of credit cards more aligned to the cost, to bring down the cost to business realtive to other forms of payment.  And it’s certainly done that.

But what was really interesting in the RBA paper was the flow-on effects from the way Visa and Mastercard have since adjusted the interchange rules for different types of cards.  It’s now the case that your bank will earn on average twice the interchange revenue when you use a Platinum card than if you had taken a standard card into the same store and bought the same thing.

So of course this has meant that the banks have been pushing Platinum cards for a while.

• Our database actually lists more Platinum rewards cards than standard rewards credit cards.
• There are a number of ‘pretend’ Platinum cards on the market – ones that don’t offer any rewards points at all, and others that offer rewards but have stripped away the traditional concierge services and the like.
• All of the biggest balance transfer offers this season have been all on Platinum cards.
• And many card issuers have been through systematic programs to upgrade existing customers onto Platinum.  Sometimes very crudely:  I know of one issuer who retired a no-fee gold card product and moved customers up to a Platinum card, even though the Platinum card had an $80 annual fee, and has had quite a few complaints about it.

And that’s the catch for consumers; they need to do their homework to judge whether the extra benefits of the Platinum outweigh the extra fee.  I’ll give you an example.  We feature a tool on our site where people can do that, the Rewards Revealer.  And it reveals that for some cards, the retail value of the rewards you can earn on the Platinum card less the annual fee, is less than what you get on the standard version of the same card unless you pay more than $35,000 on it.  So it really is important for consumers to do those calculations.

For retailers, moves towards higher interchange cards may end up putting pressure on the acquiring business of the banks and may lead to a rise in merchant service fees that businesses pay.  This may come on top of upcoming restrictions on credit card surcharging, which is something the RBA has already proposed to stop some of the very blatant profiteering we’ve seen in some industries – airlines for example.

I was given a challenge last week by the Mozo team to see how much I could save by using the Rounding Up savings method. And I can tell you this was the easiest challenge I’ve ever taken on because all I had to do was spend money.

The Rounding Up method is pretty simple and is an effortless savings solution for ‘someone’ who finds it difficult to save and I’m definitely that ‘someone.’ How it works is every time you make a purchase, you round up your transaction to the next dollar and deposit the excess into a savings jar (or a piggy bank!).

For example, today I strolled down to my local cafe and ordered a tuna sandwich and a skim latte totalling $10.50. I rounded up my purchase to $11.00, with $10.50 going to the friendly barista and $0.50 going into my savings jar.

Looking over my weekly spending from last week, I was pleasantly surprised to see that I spend way less than I thought and I’m a Gen Y! From Monday to Thursday my spending was pretty limited. Usually consisting of my daily return train ticket and takeaway lunch because I’m too lazy to bring my own. As would be expected, my spending increased over the weekend, thanks to a few friendly beverages.

Some lessons I learnt over my Rounding Up experiment week were that I eat far too much junk food and the little things count. My overall weekly spend was $384.40 and my total weekly rounding up savings was $30.60. This might not sound like a lot but over a year this will amount to $1621.80. That’s more than enough for my end of year holiday!

Of course, not everyone can be bothered to diligently round up and put money into a savings jar. Luckily a few financial providers now offer Rounding Up as an automatic feature, such as the St.George SENSE and the Bank of Melbourne SENSE. If this doesn’t tickle your fancy, try the Rounding Up experiment for just one week (like me!) then set up automatic weekly deposits to any high interest savings account, to the equivalent of the Rounding Up amount – easy!

The ultimate reason for using the Rounding Up method is to help you save with little effort. If you make a conscious effort to round up to the next dollar every time you make a purchase and put the excess into your savings jar (savings account) whenever/wherever possible, the rounding up feature will help you (yes you!) become a saver.

Here’s a closer look at my spending over the week and the daily Rounding Up. Keep in mind that I’m a recent uni graduate, living at home, otherwise known as a Kidult, so my spending won’t be as high as some of you out there!

Monday: Train ticket ($4.20), Thai stir fry ($8.50), gum ($1.95), bottle of water ($2.20)
Total spend: $16.85 Total Rounding Up: $2.15

Wednesday: Train ticket ($4.20), pork roll ($4.20), green tea (3.50)
Total spend: $11.90 Total Rounding Up: $2.30

Thursday: Train ticket ($4.20), chicken sandwich ($7.40), milkshake ($5.60), magazine ($4.95), bottle of water ($2.20)
Total spend: $24.35 Total Rounding Up: $2.65

Friday: Train ticket ($3.40), Thai food ($23.70), club/bar entry ($8.50), pretzels ($7.30), 2x vodka lemon, lime & bitters ($6.40 each), 2x vodka lemonade ($6.10 each)
Total spend: $67.90 Total Rounding Up: $5.10

Saturday: Can of coke ($2.50), hot chips ($5.60), sunscreen ($11.45), shampoo ($9.10), conditioner ($9.10), pedicure ($35.20), skirt ($34.50), thongs (29.05), movies ($21.50), popcorn ($9.10), large coke ($6.50), x3 Beer ($6.20)
Total spend: $192.20 Total Rounding Up: $9.80

Sunday: Coffee ($3.20), bacon and egg roll ($6.10), 2x DVDs ($6.50), salt and vinegar chips ($3.20), Maltesers ($3.20), can of coke ($2.50), petrol ($25.10), bottle of water ($2.20)
Total spend: $58.50 Total Rounding Up: $6.50

TOTAL WEEK SPEND: $384.40
TOTAL WEEKLY ROUNDING UP: $30.60

Every one has their own savings secret (cash under the mattress). What are some of your unique ways of savvy saving?

How many times have you been out and about and thought, “Ah, I don’t have any cash to pay for my train ticket or oh-no this Chinese restaurant doesn’t accept EFTPOS!” We’ve all been there and the only solution is to find the nearest ATM ASAP.

Unfortunately, we’re paying a big price for this ‘convenience’. ATM fees are on the rise and this year Aussies will pay a whopping $600 million in ATM fees! Here at Mozo we call it the ATM trap because people are stuck in an annoying situation where they need cash fast but their own financial provider’s ATM is nowhere to be found, or at least a good ten minute walk away.

The problem is the ATM market is not competitive because customers don’t have time or understandably can’t be bothered, to venture around town to find a fee-free ATM. On top of this there is no regulatory control of ATM fees and the Reserve Bank’s ATM reforms of 2009 have simply not worked.

The banks charge us $2.00 just to access our own cash if we’re not a customer, even though the cost of processing an ATM transaction is probably under $0.10. And if you think $2.00 is a hefty ATM fee, Customers ATM and Cashcard (the two main independent ATM operators) have just hiked up their ATM withdrawal fee from $2.00 to $2.50. Never heard of these guys? Well you’ve probably used one, as they own roughly 30% of all ATMs in Oz!

You’ll find independent ATMs in places like your local convenience store, where you buy the milk, often under the disguise of bank-branded ATM machines. Some of the culprits that allow independent providers to use their brand logo on ATMs with a $2.50 withdrawal fee are the Bank of Queensland, Suncorp, Bendigo and Citibank.

Another nasty sting, that you’ll find when using many ATMs is a balance inquiry fee. RediATM (the credit union ATM network) has just increased their fee from $1.00 to $2.00. So if you use another bank’s ATM to check your balance and then make a withdrawal, you could pay up to $4.50 for the privilege! To avoid the bite of balance inquiry fees, we advise using the internet, your smart phone or phone banking to access your bank balance.

At the end of the day, the best option for avoiding ATM fees is researching and using your own bank’s ATM network. For example, Westpac customers don’t get charged for withdrawing from St.George, BankSA and the Bank of Melbourne ATMs. CBA customers can also make fee-free withdrawals at Bankwest ATMs. And NAB customers can do the same at RediATMs.

While the two biggest ATM operators have jacked up fees, the Mozo rate chasers will be on the case, watching the banks closely to see if they follow suit and make $2.50 the new standard ATM fee for withdrawals.

Here’s 5 tips for avoiding nasty ATM fees!

1. Use your own bank’s fee-free ATM network
2. Withdraw cash with an EFTPOS transaction
3. Use NAB ATMs which charge $1.50 per withdrawal and $0.50 per balance inquiry
4. Check your balance online, on your mobile or over the phone
5. Get a bank account that gives you fee-free withdrawals everywhere, like the ING Direct Orange Everyday Account (for withdrawals of $200 or more).

Want to learn more about the ATM fee trap? Take a look at our awesome ATM infographic!

Who doesn’t have a high interest savings account? I’m guessing most of you do. The fact is, many high interest savings accounts offer awesome bonus intro rates up around 6%.

But what you might not be aware of is the stand-out 6% intro rate you have signed up for could change over the course of the 4-6 month intro period depending on your savings account. What you’re signing up for with many of the high interest savings accounts isn’t actually the advertised intro rate fixed for the entire intro rate period but a fixed “bonus interest” rate that gets added to the savings account’s ongoing variable interest rate.

It’s all in the wording used by the financial providers clever, or shall we say stealthy marketing team. The words “variable” or “up to” that are placed in tiny writing next to the large font of the advertised intro rate will generally mean, “yes, you could earn up to this amazing rate but it could change!”

For example, NAB markets its iSaver intro rate as a high 5.50% special variable rate for the first four months. But the fine print reveals, the 5.50% special intro rate is actually the 4.15% standard variable rate plus a bonus 4 month fixed interest rate of 1.35%.

So if the RBA decides to cut the official cash rate by 25 basis points, your financial provider could follow suit and drop the ongoing variable interest rate of your savings account. In the case of the iSaver account, this will mean that instead of receiving that amazing 5.50% intro rate for the first four months, you’ll now only receive a 5.25% bonus intro rate.

We should also point out that variable intro rates will work in your favour if rates go up but this hasn’t been the recent trend with savings accounts.

While bonus intro rates can be a great incentive to switch accounts, what you should really pay attention to is the ongoing standard variable rate because a savings account with a higher ongoing rate will pay more interest in the long term. For example, with a $5000 balance over one year, you will earn 20% more interest on the UBank USaver, which has a high ongoing standard variable rate of 5.41%, than the NAB iSaver which has a high intro rate of 5.50% but a much lower standard variable rate of 4.15%.

Here are 3 savings accounts with top-notch high ongoing interest rates, with some conditions to keep in mind:

Not happy with your High Interest Savings Account? Compare the market on Mozo and find the ultimate savings account for you.