Neobanks 86 400 and Up top charts amid savings rates crash
Wednesday 20 November 2019
In the past year we’ve watched the savings account landscape change dramatically as rates have shifted from a state of flatlining to the total free fall which we’ve witnessed over the past five months.
Of course there’s no great mystery behind this shift.
For (roughly) three years between August 2016 and June 2019 ongoing savings account rates were flat as a pancake - a period which coincided with a pause between Reserve Bank (RBA) interest rate movements.
Since June 2019, when the RBA made its first cut of the year, these rates have been tumbling though.
To put it in perspective, the average ongoing savings account rate in the Mozo database in November 2018 was 1.52%, whereas it now sits at just 0.99% - a 0.53% drop in just a year.
“Banks have not been shy about passing the 2019 RBA cuts on to their savings account customers as they attempt to maintain a balance between home loan rates on the one hand and deposit account rates on the other,” said Mozo Banking Expert, Peter Marshall.
“Unfortunately for savers this means that they’re now receiving a much lower rate of return on savings accounts and term deposits than they’ve been used to in recent years.”
Neobanks mounting a challenge
In October 2018, Up became Australia’s first neobank to launch to the public, followed by 86 400 in September 2019 and these two will likely be joined by the likes of Volt Bank and Xinja in the very near future.
So what do savings account rates and neobanks have in common?
Well as of the time of writing, 86 400 and Up share the title of having the highest ongoing savings rates in the Mozo database at 2.25%.
|86 400 - Save Account||2.25% (balances up to $100,000)||Deposit $1,000+ each month|
|Up - Saver Account||2.25% (balances up to $50,000)||5 card purchases per month using linked debit card|
|BOQ - Fast Track Saver||2.15% (balances up to $250,000)||$1,000+ into linked Day2Day Plus Account per month|
|UBank - USaver with Ultra Transaction Account||2.10% (balances up to $200,000)||Deposit $200+ into either account per month|
And according to CEO Robert Bell, 86 400’s digital platform is a real advantage when it comes to being able to offer users a competitive savings rate.
“86 400 operates without the expensive overheads of traditional banks like physical branches or legacy systems,” he said.
“By operating as a digital-first smartbank with a technology and automation embedded throughout our business, we’re able to pass on these savings to our customers and help them take better control of their finances.”
To put the 2.25% maximum rate offered by 86 400, and Up into perspective, only 12 banks in the Mozo database currently offer an ongoing savings account interest rate of 2.00% or higher.
It also sits well above the rates being offered by the big four banks.
With a maximum rate of 1.65%, the Westpac Life Account is the highest on offer among the majors, followed by NAB’s Reward Saver at 1.61% and ANZ’s Progress Saver at 1.60%.
The Commonwealth Bank’s GoalSaver sits even further below the rest of the pack at just 0.90%.
Is saving about more than just a rate?
Despite the fact that his own bank is offering one of the highest rates around, Bell still makes the argument that savers need to do more than focus on interest rates alone - especially in a low rate environment.
“Given the current state of play of Australian rates, comparing accounts simply on rates doesn’t give consumers the full picture. Consumers should also be comparing the requirements needed to achieve the best rates.”
Unlike introductory rates (which only last for a set time period) and base rates (which are no strings attached), savings accounts with ongoing bonus rates require savers to meet minimum criteria each month.
For example, 86 400 require savers to deposit at least $1,000 a month into a Save or Pay account while fellow neobank Up has a minimum requirement of at least five card purchases each month using their Everyday Account.
And unlike many ongoing bonus rate savings accounts, neither 86 400 or Up restrict savings account withdrawals during the month.
Image: 86 400 CEO Robert Bell
Bell also urged Australians to be proactive about increasing their savings by shedding unnecessary expenses - for instance, subscription services.
“One of the biggest expenses Australians face is paying for subscription services they don’t use and forgetting to pay their direct debits on time due to our increasingly complex financial lives,” he said.
“Recent research conducted by YouGov found that Australians are wasting $2.7 billion every year on unused subscriptions – or almost $500 per person – and are being charged nearly $1 billion in late fees over the same period.”
“These are really simple habits to fix, with the right tools, and can save considerable amounts of money.”
One way neobanks like 86 400 are aiming to target Australian savers is by providing the “smart technology” to allow their customers to better track saving, spending and payments - all from an app.
“The 86 400 app tracks customer savings and spending across all their financial accounts (from over 150 different financial institutions), including credit cards,” said Bell.
“It also clearly displays money coming in versus money going out each month from their 86 400 account and it provides customers with simple actions they can take to better manage their money, such as providing nudges about upcoming bills, subscriptions and direct debits.”
Interested in learning more about neobanks? Take a crash course with our digital banking and neobanks guide, or start comparing a range of savings accounts by heading over to the Mozo savings account comparison tables.