the mozo blog

**The following blog has been updated. Please see comments below for more detail.**

We love a good personal crusade here at Mozo HQ. So when we recently received a passionate plea from a concerned citizen questioning why internet fund transfers aren’t in real time, we thought it was worth publishing and doing some number crunching to figure out what the delay adds up to.

Here is the full article:

All internet funds transfers should be in real time.

The Banks have a privileged position in the economy being a necessity for the flow of funds through the market. Their privilege is not matched by their overweighted focus on results for the shareholders as opposed to the better good of the country. Their protests that margins have to rise to keep the banks strong and therefore benefit the community are difficult to accept when there is likely greater benefit to the economy by their measured increases in rates similar to the RBA. The out of order rise from the CBA is more an indicator that that Bank got it wrong with their risk management and we are paying for it.

There is much comment lately about how the Banks need to treat the customer fairly. There are different ways this could be addressed. My crusade for fairness is to enable all electronic transactions to be real time. For example when you make a funds transfer on the internet to pay a bill or a BPay transaction to pay a bill it should not take 1, 2 or 3 days to arrive at the destination.

Let the Banks try that trick at the supermarket checkout! It could take several days to complete the shop because we would have to wait for the funds to arrive at the Woolies or Coles account. That is not going to happen.

The Banks have the systems to achieve this now. The real time gross settlement system will allow this. Oh I forgot, you can go to your bank and request such a transfer to another person’s account if you want to pay a fee of about $35.

EFTPOS transactions are immediate. The transfer is completed while we wait. Money has moved from my account to another account because I authorised it. Why does that not happen with internet banking for individuals and business? I know there are businesses large enough that they have systems through the Bank that allow this but this must be made available to all.

Why, because the Bank has taken the funds from my account and only once they have finished investing it overnight or for three days to squeeze every last earning out it will the Bank allow it to continue on its journey. Why do I wait for three days for my funds to arrive? That is costing me interest if it is paying a credit card. If the debit is from an overdraft then it is costing me at both ends.

If the Banks are the conduit, the pipe is blocked and needs a clean out. Regulate that if there are clear funds in an account that a funds transfer to another account should be real time.
– ends –

And what about the numbers?

Let’s take UBank as an example. It recently announced that it has $5 billion in deposits. It seems common for UBank to have a 3 day delay coming in or out. All $5 billion had to get in there, and will come out again at some point, and so it loses up to 6 days of interest. At UBank’s 6.51%, that’s over $5 million [edit: $2.5 million - see comments below] windfall to the banks – and that’s just on the money in UBank.

Does that sound fair?

Compare banks at mozo.com.au

Last night’s federal budget contained the very welcome news that interest on your savings will soon receive special tax treatment. From 1 July 2011, you’ll only pay half the tax on the first $1,000 of your interest income.

This is a big win for the banking industry. The measure only applies to income earned on bank accounts, savings accounts, term deposits, bonds and annuities. It will have the effect of pulling money into the banks from other investment vehicles — and from out of cookie jars and under mattresses. And it is Mr Swan’s hope – and mine, and I’m sure yours – that this extra leg up for banks will help them gather sufficient deposits to reduce the overall cost of funding their home loan products. Wouldn’t that be nice: better savings returns and cheaper home financing. Only time will tell.

But what’s it mean for you exactly? Well, at an interest rate of 5.85% (the best standard at-call interest rate in the market right now, at UBank), you’ll be able to save up to $17,000 and receive the full rate reduction. If your taxable income is between $35,000 and $80,000 then you’ll only pay an effective tax rate of 15% on interest: that means a saving of up to $150 a year. And of course the savings are even higher if you’re on a higher rate of tax.

But here’s a savings measure you can access right now. If you already have money that’s not getting the best rate in the market, you can make $150 or more by moving it. If your 17 grand is only earning 4.50%, say in an old BankWest TeleNet Saver account, then moving it to a rate of 5.85% makes you $150 — even after paying current tax rates. And you can do better yet with a Term Deposit, where plenty of providers offer well over 6% on your money for terms as short as 6 months.

If you’re not making the most of your savings, don’t wait for 2011. Mozo’s Rate Chasers have been out in the field chasing down the best rates – compare savings account and term deposit rates now.