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Across the market rates are heading south as anticipation increases that the RBA will move to cut the official cash rate when it meets on the first Tuesday in November, exactly one year since it last felt the need to adjust rates. During September the Mozo rate chasing data team started seeing the first real indications of this change in mood.

In home loans, fixed rates led the way down. At the end of September, the average 1 year rate was 6.62%, 28 basis points below where it was in August, and the average 3 year fixed rate 43 basis points lower to 6.59% over the same period. All of the major banks reduced their fixed rates in September – the biggest 1 year fixed movement was Westpac slashing its rate by half a percent to 6.69%, and NAB cut its three year rate by 45 basis points to 6.64%.

The best 1 year fixed rate for home loans of $300,000 is Greater Building Society’s 5.89%, 40 basis points lower than a month ago (which was then the lowest 1 year fixed). loans.com.au took the title of cheapest variable rate loan in the market with its dream catcher home loan, dropping from 6.69% to 6.58%.

Term Deposit rates are also on their way down, with both the market average and the best 1 year rate down by about 15 basis points. At the end of September the average 1 year rate was 5.54% and the best in the market was Beirut Hellenic Bank at 6.10%. The major banks are pulling their rates back too.  ANZ had the biggest drop in any of the big four 1 year rates over the month, a 42 basis point reduction to 5.18% .

Competition in the online savings account area has been running hot for the last year, and over the 12 months to the end of September the average Savings Account rate increased by 35 basis points, 10 basis points more than last November’s RBA cash rate increase. Going against the trend, and perhaps a sign of things to come, Westpac cut the rate on its eSaver by 50 basis points to 4.80%.

The only positive online savings rate movement Mozo saw in September was RaboDirect increasing its bonus rate offer on its High Interest Savings Account by 0.01% so it could claim equal best rate in the market (with UBank and Virgin Money) at 6.51%.

As blogged about last week, when we were collecting the data to power our new business banking comparison service, we were surprised to discover that small businesses were being treated as second class savers by many banks, receiving on average 0.56% lower interest rates than personal savings account customers.

We could see no justification for this levy on business savers. Are the banks earning any less interest on business savings? We contacted several banking providers to get answers, here’s what they had to say:

NAB
Personal Savings Account: iSaver
Introductory Interest Rate: 5.75%
Ongoing Interest Rate: 4.75%

Business Savings Account: Business Cash Maximiser
Introductory Interest Rate: n/a
Ongoing Interest Rate: 0% for balances under $10K, 4.75% for balances over $10K

Difference: Intro rate: 1.00%, Ongoing rate: up to 4.75% depending on account balance

Response: The needs of business and personal customers are different. Business customers who are looking to earn interest on their cash generally look at a term deposit or more sophisticated investment vehicles. In contrast personal customers use deposit accounts more as a traditional savings account, and are therefore more focused on interest rates.

Sharna Rhys-Jones – Group Media Adviser

RABODIRECT
Personal Savings Account: High Interest Savings
Introductory Interest Rate: 6.50%
Ongoing Interest Rate: 6%

Business Savings Account: Business High Interest Savings
Introductory Interest Rate: 5.60%
Ongoing Interest Rate: 5.10%

Difference: Intro rate: 0.90%, Ongoing rate: 0.90%,

Response: Business money by its nature isn’t as sticky as personal clients so it’s priced accordingly. Due to SME’s cashflow requirements there tends to be more inflows and outflows so banks cannot rely on having long term access to the funds compared to personal clients. Therefore we price SME accounts at lower rates.

Greg McAweeney – CEO

BANKWEST
Personal Savings Account: Telenet Saver
Introductory Interest Rate: 6.15%
Ongoing Interest Rate: 5.25%

Business Savings Account: Business Telenet Saver
Introductory Interest Rate: n/a
Ongoing Interest Rate: 5.20%

Difference: Intro rate: 0.95%, Ongoing rate: 0.05%

Response: Business customers prefer other value adds over a bonus rate, such as access to a business banking specialist should they need it. Access to a business banking specialist is offered regardless of whether you have a single business savings account or a whole business package.

Tatiana Day – National Media Manager

What’s even more interesting is that not all banks treat business savers as second-class customers. And the ones that play fair say they can’t see any justification for the ones that don’t. Here’s what they have to say on the matter:

ING DIRECT
Personal Savings Account: Savings Maximiser
Introductory interest rate: 6.35% for four months
Ongoing Interest Rate: 5.0%

Business Savings Account: Business Optimiser
Introductory interest rate: 6.25% for six months
Ongoing Interest Rate: 5.0%

Difference: Intro rate: 0.10% but the longer intro period evens things out, Ongoing rate: 0%

Response: We want to offer consistent long-term value and fair pricing to all our customers. We don’t think tiered accounts are fair. Most of our business customers are SMEs looking for a simple, easy to manage online account with great rates. Businesses shouldn’t be penalised for the size of their business.

John Arnott – Director of Products

ME BANK
Personal Savings Account: Online Savings Account
Introductory Interest Rate: n/a
Ongoing Interest Rate: 5.60%

Business Savings Account: Business Investment Account
Introductory Interest Rate: n/a
Ongoing Interest Rate: 5.60%

Difference: None

Response: There is no justification for offering lower rates to business customers. All ME Bank customers receive the same fair deal whether they are individuals or businesses. Simplicity, transparency and fairness are our core principles. We don’t offer short term introductory rates, tiers, or have hidden fees and we calculate interest on every dollar, every day.

Ian Hendey, Group Executive Brand, Product and Distribution

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What do you think? Do businesses want value adds over great rates or do they just want a fairer deal? Have your say here on tell us what you think on Mozo Answers

When you’re setting up a small business or looking to switch banks, you’ll want two things from your financial institution: convenience and affordability. So you might think banks everywhere would be offering up competitive package deals on a suite of business products to service the time poor, cash-flow-starved start-up market. Not to mention the time-poor, expense-averse small business market looking for a better deal.

You’d be wrong.

This week we launched a business banking section on Mozo – detailing all the business loans, business credit cards and business bank accounts on offer. And we’ve been surprised to discover that of the Big Four banks only ANZ offers an online business package that rolls various products into one deal – and one monthly fee of $32 + GST. This gets you a transaction account and a range of extras such as a savings account, payment account, credit card and merchant services.

The catch is that other fees and charges may apply – for example, on terminal rental, which still attracts half the usual monthly rental fee. So by paying “one simple monthly package fee” you don’t necessarily avoid a slew of complicated monthly fees.

Westpac is happy enough to bundle services under its “Business Foundations” package, which marries a transaction account with two additional products and saves you “up to $1,100”. But again, you’re looking at a variety of different fees and charges – and you’ll have to choose between credit cards, a savings account and a business loan.

The catch this time round is that your potential discount of $1,100 is made up of savings such as “a 25% discount off Financial Management Workshop 101” – worth $225. Another way of looking at this is an additional cost of $665 for said workshop.

Commonwealth Bank and NAB offer all the same individual products, and a similarly complicated set of calculations to figure out which bank has the most competitive package overall. And challenger brands – such as Bankwest business accounts or the St George BizPack – make it equally difficult to estimate the total cost of running a few perfectly standard accounts.

It’s the same old bank game of burying fees in incomprehensibility. But stay tuned: Mozo is set to unpick the fine print to find out which banks have the best business deals.

Do you have a business banking question? Ask the gurus on Mozo Answers, our super new Q&A forum.

If you haven’t heard, apparently banking’s ‘Big 4’ is now the ‘Big 3’. Through a carefully planned and executed integrated campaign rooted in social media, NAB have decided to ‘break-up’ with ‘former’ cohorts Commonwealth, Westpac and ANZ.

On face value, it seems like a smart decision from NAB. Attempting to shed the image shared by the ‘Big Four’ could only help it’s stuttering financial performance and doing so by shedding fees and lowering rates is also a great step. However, could this move backfire in the long term?

By breaking up with their illustrious rivals, NAB’s losing its one key positive attributes – being better than the rest of the Big Four. Amongst their former brethren, over the past 18 months NAB had managed to position itself as the cheaper alternative with lower rates and less fees. Now having ‘broken up’, it opens them up to greater comparison with challenger brands, the likes of ING Direct, Aussie and RaboDirect, who have been doing this for a long time anyway. And this comparison isn’t pretty reading, particularly when looking along at the home loan battleground where the bulk of this banking war is being fought.

For example, NAB may have the lowest rate standard variable home loan out of the Big Four, but compare it to the rest of the market and they rank a lowly 36th out of the 58 different providers’ standard variable loans we have on our site. If you go on to take upfront and ongoing fees into account by sorting by comparison rate, they sink even further, plunging to 43rd on our list – though still above Commonwealth, Westpac and ANZ I might add.

Which leads to the wider problem with NAB’s strategy. I applaud its moves to cut fees and interest costs and I enjoy the fact that it’s trying to reignite competition in the consumer banking marketplace. The problem is, if everyone starts surveying their options and voting with their feet, will NAB be the winner? Who says an irate Commonwealth Bank customer is going to land up on NAB’s door when they can go a bit further down the road and get an even cheaper home loan? Moreover, what’s to stop NAB’s customers doing the same? Mutuals and Non-bank lenders on average still have far lower rates and fees.

If everyone starts looking for the best deal, NAB’s got a battle it can’t win. Not yet anyway. Breaking up may be hard to do, but only time will tell if it was the right thing to do.

Compare home loans at Mozo.

Welcome to week 2 of the ‘Mozo Answers Question of the Week’. Our Answers forum has been bombarded by questions about deposits this week, mainly centering on what the best rates are for both savings and term deposit accounts as well as the respective benefits of choosing a term deposit over a savings account and vice versa.

Lets start with savings accounts, where there are a couple of standouts well worth looking at. First off, BankWest’s “Regular Saver” has no monthly fee and a market leading rate of 7.0%. It’s an amazing rate, however you can’t make any withdrawals and you can only deposit up to $500 a month. If you can’t stick to those parameters, UBank’s USaver is a great option. It’s got a fantastic interest rate of 6.51% as long as you set up an automatic savings plan of at least $200 a month, 6.01% if you don’t. There’s no monthly fee, you can withdraw and deposit as much as you like and there are no balance conditions either.

Turning our focus towards term deposits, as a result of some pretty fierce competition there are a lot of attractive rates out there at the moment. To get the best out of a term deposit you’re better off giving it some time – for example, to get a rate of 6.0% or over you’ll have to invest your money for a minimum of 6 months. Take a look at the table below to see some of the best rates out there on various terms:

Earlier this year we cracked the rewards code to reveal the value Australians were getting for their money with rewards credit cards with the launch of our Rewards Revealer tool. Today, consumer advocacy group, CHOICE, launched the 2010 CHOICE Shonkys, awarding the Commonwealth Bank Awards program a Shonky for low flying jest.

CHOICE singled out the Commonwealth Bank for its shonkiness in how the points are calculated for cards linked to the Qantas Frequent Flyer program. Unlike other rewards credit cards where one rewards point equals one Qantas Frequent Flyer Point, with the Commonwealth Bank card you only earn points at half the rate. It means you have to spend double the amount of money to earn the rewards.

The Shonkys, reminded us here at Mozo HQ of just how important the Rewards Revealer is, and so we decided to take this opportunity to take a look (and highlight) some other shoddy practices and unrewarding rewards programs.

Based on a $12,000 annual spend the three worst performing rewards cards are:

(excluding platinum cards)

Rewarding? Maybe for the banks but certainly not us consumers.

With the NAB Gold Card to earn you a flight from Sydney to London you’d need to spend a mind blowing $937,500 and that’s not the biggest catch. Points expire after 36 months, so unless you are planning on buying a house on your credit card, it’s virtually impossible to accrue enough points to redeem the flight before they expire.

But even more telling is that it’s not just a handful of rewards credit cards that will put you in the red. Of the 71 standard rewards cards in the market, 35 will cost you more than they return in rewards value each year (at $12,000 annual spend after the annual fee).

So, what can you do to ensure you get value from your rewards card? Here are our top tips:

1.    Make sure you are earning more in rewards than you are paying in annual fees
2.    Always pay off your card in full each month to avoid high interest rates
3.    If you have a credit card debt, switch to a low rate card instead

Compare rewards credit cards at mozo.com.au

Late last year, consumer group Choice won a significant victory in the conservative (ie stubborn) field of bank fees. NAB declared it would drop dishonour fees on overdrawn savings and transaction accounts following a backlash against the unpopular charges. And now businesses will reap the rewards, too.

The bank was pressured both by ongoing complaints and the Reserve Bank’s disclosure that the industry raised almost $1 billion in dishonour and exception fees. While the cause was taken up in defence of underprivileged account holders, small business will also enjoy the fruits of fee free accounts, which come into place this week.

At this stage, none of the other big banks have followed NAB’s move, but it’ll be interesting to see whether more consumer agitation drives changes that also benefit small business. We’ll keep you posted.

Compare banks accounts at mozo.com.au

The question I get asked more than any other right now is – should I fix my home loan?

My answer, as from an hour ago, is clearly yes…

The reason is that the Commonwealth Bank has just put its standard variable home loan rate UP! The NAB has said that rates are under review, and the other big banks are no doubt doing the same. This means that regardless of whether the RBA keeps cutting rates or not, the banks are clearly signalling that they are done with cutting theirs.

I also think that we are at, or very near, the bottom of the Reserve Bank rate cutting cycle anyway. There is light at the end of the economic doom and gloom tunnel, our resources driven economy continues to show signs of strength, our government continues to announce spending plans, and there is renewed optimism. All this points to a recovery of business activity and growth. In fact we are seeing it as well, with things like advertising rates going up in the last month with our own advertising. All this growth reemerging means the RBA can stop the rate cutting, probably now but perhaps a small additional cut or two at most.

Even before CBA’s move today, the banks have stopped passing on rate cuts. The last RBA cut was a Claytons rate cut, because the banks didn’t pass it on anyway (well only 40% of it to be precise). It was a clear message, they’re done going down. CBA’s move today is simply a continuation of that message.

It is also worth considering that picking the exact bottom isn’t necessary anyway if you take a long term view. Even if there is a little further to go (and if there is we can only be talking small drops, we’re already at the lowest rate level ever), over a long term view we’re so close to the bottom that long term decision making should be rewarded.

So all that says to me that it is a good time to lock in a fixed home loan rate while we’re at or near the bottom of the rate cycle. If you lock in a fixed rate for say 5 years, it’s hard to see how that won’t be a lower rate in 2014 than the variable rate will be by then. In all likelihood we’ll be back in booming economic times and the rate cycle will be up already or on the way. A decision you make today could lead to a pleasant experience reading your home loan statement in 5 years!

In fact I happened to see an email newsletter from March 2008, just over a year ago, and it advertised the My Rate Home Loan at 8.44%. My Rate Home Loans are now at 4.99%. If rates can come down that fast in a year, then think how much they could move up over the next 5 years.

And locking in a fixed rate today can get you rates well below this March 2008 level. For example with RAMS Home Loans you could get a 3 year fixed rate at 5.89% and a 5 year fixed rate at 6.49%. To lock in that sort of rate for that sort of time seems nothing but sensible to me.

Fix now before the banks move their fixed rates up. This is inevitable now in my mind, as they try to quickly adjust. Be savvy and move before they do.

So fix away and sleep well. Over the long term it will be a winning decision.

Compare fixed rate home loans with Mozo.com.au