the mozo blog

It’s officially been over a month since we launched Answers and with well over 300 questions and answers submitted it looks like you’ve all taken quite a shine to it. One of the questions that crops up regularly is “what are the best accounts for students?”. So to find out who’s top of the class, here are a few things to look for when choosing bank accounts, credit cards and personal loans for students.

Bank Accounts

Students are a frugal bunch at the best of times, and if you’re looking to save enough change for some $7 Pad Thai for lunch, the humble bank account is one place where you can save a few pennies by avoiding unnecessary charges on everyday transactions.

First of all, you want a student bank account with as few fees as possible. That means no monthly service fee, no own-bank ATM fees, and no eftpos fees. You also want to make sure that there aren’t any minimum requirements or conditions for the account fees to be waived, as chances are you won’t be able to meet them with just a casual wage and centrelink. The other key component is the availability of a debit card so you can shop online using your own money. All of the Big 4 (ANZ, Commbank, NAB and Westpac) have accounts that match this criteria, and seeing as they have the largest ATM networks you’re best off sticking with them as it’ll mean you’ll pay less foreign ATM fees.

Credit Cards

Some of the big banks offer specific student credit cards, whilst there are other ‘normal’ credit cards that are an ideal fit for students. What is an ideal fit? By and large students are looking for a no frills, low cost solution that can act as a type of overdraft. So the things to look out for are interest free days, annual fee and interest rate. My recommendation? Take a look at the self-titled ‘HSBC credit card’ or BankWest’s Zero Mastercard. Both have low fees, 55 days interest free days, a reasonable purchase rate and relatively low income thresholds for applications.

As far as income goes, the combination of youth allowance and some part-time work will get you over the line for most no-frills cards. When you apply, make sure you take documentation for all your income in the form of payslips and centrelink documents if need be.

Personal Loans

For those looking to avoid the potential pitfalls of credit card ownership, some banks offer specific student loans to help cover the costs of textbooks, living costs, fees etc. These loans tend to feature reduced fees and/or interest for students and some even allow you to defer interest payments till after you’ve completed your studies! Victoria Teachers Credit Union’s Student Loan currently leads the market, offering an unsecured loan with no monthly fee, a low application fee of $20 and an extremely low variable rate of 11.55%.

Still hungry for information on student accounts? Stop playing ultimate frisbee and head over to Mozo Answers or check out the Mozo Student Room!

If you haven’t seen the ads scattered all around town, the Commonwealth Bank has launched a new savings account. Initially dismissive due to the fact that ‘Big 4’ savings accounts rarely set the market alight, having to eyeball the ad at the bus shelter on my way to work every morning finally drove me to their website (don’t you hate it when the advertising wins?). A few clicks later and I was pleasantly surprised to find something worth writing about.

When it comes to savings accounts, there are two things that matter – rate and monthly fee. Commonwealth’s Goal Saver has managed to deliver on both fronts. For starters, there is no monthly service fee on the account. As for the interest rate, it’s an ongoing 6.0% – as long as you increase your balance by $200 a month and make no more than one withdrawal a month. Failure to meet the requirements and the rate drops down to a measly 3.0%.

The real headline here is the special rate conditions. Where before the market was focused on a ‘honeymoon rate’ that stayed high for the first few months then receded back to a lesser standard rate, over the past few months we’ve seen a trend emerging in favour of high ongoing rates with regular conditions. BankWest’s Regular Saver is currently at the head of the market with a rate of 7.0% as long as you make no withdrawals and deposit between $50 and $500 a month and UBank’s USaver offers 6.51% as long as you deposit $200 a month.

Whilst the Goal Saver rate does not quite hit the heights of BankWest and UBank, it certainly is a very good effort from a Big 4 bank and definitely warrants some consideration, particularly if you’re an existing Commonwealth customer who likes the convenience of all your banking in one place. As for the competition, the Goal Saver’s combination of rate and flexibility has really given Commonwealth the march on their rivals. Neither NAB or Westpac offer an ongoing rate anywhere near the 6% mark and whilst ANZ’s rewards saver does, it doesn’t have the flexibility of allowing any withdrawals.

It’s good to see banks starting to shift the goalposts towards rewarding their existing client base for an ongoing period as opposed to continuously luring new clients in with flashy headline rates then forgetting about them after four months. For so long banking advertisements have featured pledges to put the customer first only for the exact opposite to occur in practice. Perhaps this new offering from Commonwealth heralds the start of all that changing. And who knows? When all’s said and done, it might even stop me taking so long to notice those ads at the bus stop.

Got any more questions on savings accounts? Ask away on Mozo Answers!

We’ve now started to see other banks’ responses to the Reserve Bank’s interest rate rise on Melbourne Cup Day – others apart from the astonishingly audacious Commonwealth Bank, who are clearly Determined to Break Profit Records.

Flying in the face of the majors’ insistence that interest rates “must” go up beyond the Reserve Bank’s increase, a number of smaller players have announced that they are passing on no more – and in some cases, even less.  By Friday we had heard from Newcastle Permanent Building Society, Greater Building Society and Laiki Bank – all announced a 0.25% increase.  ME Bank did the same for their super fund members’ loans, but passed on only 0.15% to their other customers.  And Yellow Brick Road, run by former Wizard boss Mark Bouris, have confirmed that they will not pass on any increases to their variable rates until February.

How can this be possible, if what the Big 4 are saying is true?  Well it seems the smaller players are taking a look at the whole picture, and realising that even if your funding costs have gone up it can make good business sense not to pass on the entire increase to your customers.  There is value to be gained in keeping prices down for existing customers in order to encourage them to stay.  There is value in keeping prices down for new customers in order to make it easier to get more of them and to keep the cost of acquiring them down.  And there is value in maintaining the standing of your brand in order that all of your other businesses remain strong.

For my sins, I have previously worked closely with the pricing boffins in large financial institutions.  I know that their pricing models are not very good at taking these other sources of value into account:  in the world of their models, if costs go up and the target return on equity remains the same then the only sure way to balance the equation out is to find costs savings elsewhere or to increase prices.  And I can tell you from personal experience that if you try to talk to them about the value to be gained from being nice to your customers, they look at you as if you are from another planet.

In some ways, getting banks to change their ways is a bit like the argument for putting a price on carbon.  If businesses place no value on CO2 emissions, then they have no incentive to take them into account in the decisions they make.  They can pollute away and we all suffer, and the only way to turn the tide is for governments to place an explicit cost on the emissions.  In the same way, if banks don’t place a value on how customers feel then someone must act to force them to.  And the most effective way of getting banks to place a real and large economic value on customer satisfaction is this:

If you don’t like your bank, leave them.  Vote with your feet.  If enough people do it, then the finance boffins will have to put it into their pricing model: when prices rise, people leave.  And only then will the bank chiefs take notice.

Don’t wait for Wayne Swan.  Or Joe Hockey.  Or GetUp, CHOICE or the ACCC.  You can make the difference.

And we hope that you’ll find all the products, rates, information and tools you need to find your new home loan, right here at Mozo.

Thank you Graeme Samuel. This past weekend, the ACCC chair was quoted as saying that the big banks’ action “borders on… misconduct” in the way they have been signalling their intention to increase interest rates. This is something that’s been bothering me for some time as well, and if I’d been a faster typist last week I may have beaten him to the punch on this very page.

The Big 4 have been publicly signalling their intentions for some time now, via statements from their PR people, in-house economists and their CEOs. These aren’t just signals to the public, or to the markets. These are signals to each other. Like Mr Samuel I’m not suggesting anything technically illegal here, but you don’t need to formally agree to fix prices to limit competition.

These signals received from each other through the public domain will very definitely impact the banks’ plans. Most banking observers will clearly remember the backlash from Westpac’s “almost double” rate rise in December 2009 (compounded by their banana smoothies analogy). And prior to that, July 2009 when Commonwealth Bank made a 10bp increase without any Reserve Bank moves and was berated by everyone from the PM down. But the banks will also recall April 2009 when all 4 majors failed to pass on the full RBA rate cuts. And they know that, if they act together or reasonably closely together, then the public reaction is a more generic bank bashing and not a PR nightmare targeted at any one of them. So these “I will if you will” signals are playing a very real part in the pricing deliberations within the banks. And that should concern anyone interested in genuine competition.

Competition is also the missing ingredient in the argument between the banks and everyone else about whether funding costs have genuinely risen. The point is not whether costs have gone up, but whether it necessarily follows that prices must go up too. The tone of the Big 4′s statements implies that it is their natural right to extract any cost increases directly from their customers. Of course it is a sensible business decision to attempt to recoup increased costs. But it is not automatic that it must be done. APRA and the RBA tell us that the banks are strong, so it is not necessary that they maintain margins for reasons of security. They are maintaining margins because they choose to and because they can. There is not enough pressure from customers and competitors to force them to make other choices. It is an oligopoly.

But it is more than that. It is an oligopoly that enjoys significant protection, via its central place in the economy and the benefits that flow from it – eg government guarantee on deposits in the GFC. There are other industries with the privilege of being protected oligopolies, but where the players are not allowed to exercise this kind of power without some restriction. Energy companies and health insurers spring immediately to mind: both of these have their pricing decisions heavily regulated. Perhaps the big banks should consider their position of privilege and treat it with respect, or they may find themselves subject to pricing restrictions of some kind. The Greens already have several policies relating to bank pricing regulation, on ATM fees for example. They are in a position to wield some influence. And wouldn’t the voters in the mortgage-belt marginal seats love it!

Customers do notice, and they do care. Mozo’s customer rate and review system saw a distinct reaction to the home loan rate rises in December 2009: Westpac’s interest rates went up 45bp and their customer ratings nosedived, ANZ and Commbank upped rates in the mid-30s and saw no real change to customer satisfaction, and NAB stuck to the RBA’s 25bp rise and extracted a small gain in how customers saw them. Homeowners may not have as many alternatives as they once did, and switching providers is still very time consuming, but there are cheaper providers. And the more the Big Banks erode their customers’ satisfaction, the more vulnerable they will become to challengers or regulators or both.

Compare home loans at mozo.com.au

Home-owners will have breathed a sigh of relief at the RBA’s decision this week not to raise interest rates. But have we really dodged the higher-repayments bullet for another month? Or are the big banks preparing to open fire — and raise their rates regardless of the Reserve Bank?

Despite reports from ANZ, Westpac and NAB that they’d follow the RBA in maintaining current rates, each bank has left a back door open on an out-of-cycle rate rise. Take ANZ’s carefully worded commitment: “Interest rates are always under review, but there is no immediate trigger at the moment for any change.” Could an immediate trigger at another moment change that tune — for example, a CBA rise next week?

ANZ chief executive Mike Smith has already hinted at his interest rate intentions, saying that with the increased cost of foreign funding, “something has to give”. CBA’s Ralph Norris put his additional funding costs at $1.2bn a year. And while the RBA has declared that bank profits are more than healthy enough to cover these costs – earnings are up and the banks are more profitable than they were pre-crisis – the Big Four aren’t known for absorbing increased costs for the benefit of the Australian home owner.

So the general feeling is that the big banks were less than impressed when the RBA defied market expectations and sat tight on a base rate of 4.5%. It’s one thing for them to slip a few extra points onto an RBA raise. It’s another for them to slap on an out-of-cycle rise.

Back to those bullets, however — and you can probably expect a Big Four rate rise in November, regardless of the RBA’s decision. Prior to that, any enemy fire is expected to come from the Commonwealth corner, as they have the largest mortgage book and the greatest exposure to increased cost of foreign funding. Also, because they’re yet to declare their immediate position.

And any rise from CBA will likely be met with moves from the other big banks. Don’t you just love an oligopoly?

To escape the firing squad — why not check out the home loan competition? Our rate chasers will be keeping track of any rate moves throughout the month so visit our Reserve Bank Interest Rate page for all the latest info.

And stay tuned for our Rate rise punt: the real Melbourne Cup Day odds.

The fastest thing on four legs on Cup Day was in fact the major banks, with their fastest-ever reaction to the RBA rate rise.

After last month’s RBA rate rise, I wrote here about the Underhanded, not even-handed way that the major banks passed on the increase faster than they passed on previous rate cuts.  Across all their home loans, that little trick saw them pocket something like $17 million extra in October.  Our story was also picked up by the Daily Telegraph.

Well clearly the banks read it as well.  But instead of embarrassing them into being fairer to their customers, it seems all I managed to do was encourage them to screw you even harder.  The Big 4 managed to pass on the November RBA rate rise even faster than the last one!  When the RBA cut rates by 1% in February, it took the major banks an average of 8 days to pass on the cut and in April it took 10 days.  Last month they passed on the RBA rate rise in just over 5 days, and this time around they’ve taken only 3.5 days.  It is staggering to think that, had they passed on the 1% cut in February as fast as they acted this month, borrowers could have saved as much as $80 million.  That is simply taking advantage of their market position, and taking you for a ride.

And that’s what I call Shocking!

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