Why a big bank savings account isn't always your best bet

For many Australians, the first experience they have with managing and saving money comes with using a bank account or savings account from one of the big four banks.

That’s hardly a surprise given that ANZ, Commonwealth Bank, NAB and Westpac control a major share of the market. In fact, a CHOICE survey in 2017 found that 84% of respondents opened their first account with one of the big four.

But should savers stick with these familiar accounts over the long term? That’s for individuals to decide, but there are some common misconceptions about switching accounts that deserve to be debunked. Here are some of the main ones:

Four misconceptions about switching accounts

1. Changing accounts is hard

Inertia and the idea that ‘switching is inconvenient or hard’ is one of the greatest barriers to consumers getting a better deal, and it’s certainly a feeling that some banks rely on - especially those not offering the most competitive rates or product features.

But opening a savings account really isn’t difficult or even time consuming. The advent of online and mobile banking has meant that opening a new account can take as little as 5-10 minutes, because all you’ll need to supply are a few bits of personal information and some identification like a drivers licence or passport.

It’s true that some banks may take a day or two to vet you but others will approve you right on the spot, meaning that you can get started straight away. Plus transferring money to a new account has also been made easier in many cases thanks to the rollout of near-instant transfers over the New Payments Platform (NPP).

2. Interest rates are really low… everywhere

It’s true that savings account interest rates aren’t anywhere near as high as they once were, but there’s still enough of a gap between different offers on the market to make a real difference to the interest savers are able to earn.

Here’s an example using one of the higher ongoing rates around, the average ongoing rate in our database and the average big four ongoing rate (as of November 25, 2020). The figures are based on a starting balance of $10,000 and regular contributions of $400/month, but you can try out your own using our savings calculator.

• 1.20% (competitive rate): $621 total interest accrued plus a final balance of $25,021 after three years

• 0.52% (Mozo average): $267 total interest accrued plus a final balance of $24,667 after three years

• 0.31% (big four average): $159 total interest accrued plus a final balance of $24,559 after three years

It’s also worth noting that while the majority of the big four’s savings accounts tend to offer rates well below the most competitive on the market, the Westpac Life Account (18-29) currently comes with a 3.00% ongoing bonus rate for younger savers.

3. My money’s safer in a big bank

There’s a common misconception that smaller banks are a riskier place to park your savings than the big four, but in reality the Australian Government actually guarantees deposits (to some degree at least) across all authorised deposit-taking institutions (ADIs).

Under the Financial Claims Scheme, deposits of up to $250,000 per person, per ADI (which includes banks, credit unions and building societies) are guaranteed in the event that an institution fails. And while it’s certainly not impossible for an institution to go under, the fact is that no Australian bank depositor has lost money since 1931, according to the Reserve Bank.

4. Bigger banks have better apps

Banking apps have become increasingly popular in recent years and, among other benefits, they’ve provided a home for a host of new and useful tools for savers - think roundup tools, savings buckets and spending insights.

Of course, apps are subjective - every user will have their own likes and dislikes. But it’s not always the case that bigger banks (with larger resources at their disposal) have apps with more useful features or an easier user experience.

While the Commbank App has been a multiple Mozo Experts Choice Excellent Banking App Award winner, our judges have also awarded apps from challenger banks (Bendigo, Macquarie and ING), customer-owned institutions (Bank Australia and PCCU) and neobanks (like Up).

Tips for opening a new savings account

• Prepare your details: Opening a new account is simple, but you will need to supply basic information including your name, date of birth and address, plus identification in the form of a driver's licence, passport or medicare card. It’s also worth noting that you may need to be an Australian resident or over a certain age to apply.

• Cancel or set up recurring transfers: If you’re totally moving your savings to a new account, you’ll want to stop any recurring transfers (e.g. every time you get paid) to your old savings account and set them up for your new one.

• Close your old account: Closing an account can generally be done online or over the phone, but some banks will ask you to write to them or visit a branch. Don’t totally forget about it though, because you may need some details (e.g. BSB and account number) for your next tax return as any interest you earned will be treated as income.

• Get your apps in order: You don’t have to close an account - plenty of people manage their finances using multiple savings and bank accounts. If that’s your plan and you’ve got a phone full of apps, one good idea is to create a single ‘financial’ folder for all of them. It may also be worth setting up different pins or passwords for each one.

• Compare your options: This may be our last tip, but it should be the first thing you do if you’re looking for a new savings account. After all, comparing rates, features and fees can help you find an account that best suits your goals and needs. You can do just that, and read through some helpful guides and articles, at our savings account hub, or if you’re keen to start right away you can check out some of the great offers below.