Government should review merits of switching banks: ACCC

The Australian Competition & Consumer Commission (ACCC) has put forward seven recommendations to improve transparency on how savings rates are priced, when retail deposit rates change and to reduce barriers to consumers switching banks.

Earlier this year, the federal Treasurer Jim Chalmers MP voiced concern that while banks had been rapidly hiking mortgage rates as a result of cash rate increases since May 2022, savings rates had not necessarily risen in tandem.

Currently, more than $1.4 trillion is saved in deposits and banks rely on retail deposits for around 30 per cent of their funding needs, on average.

Given its importance to consumers and the economy more broadly, Mr Chalmers therefore asked the ACCC to explore how banks were pricing their retail deposits and whether savers were being treated “fairly” by the banks.

Majority of savers not receiving bonus interest

In its final report for its retail deposits inquiry – for which the ACCC received 51 submissions from consumers, banks, consumer bodies, and other stakeholders – the ACCC found that Australian consumers were missing out on earning higher interest on their savings due to ongoing barriers to searching for, and switching between, retail deposit products.

Interest paid to customers on their deposits is a significant cost, the ACCC said, which banks try to minimise, it added.

By reviewing how banks price deposits, the ACCC revealed that the “strategic pricing” used by banks for retail deposit products – including introductory and bonus interest rates – as well as the plethora of fees and charges and opacity in how rates change had been creating complexity that makes it difficult for consumers to compare products.

While the Reserve Bank of Australia’s cash rate target is “an important influence over interest rates throughout the economy”, the report found that banks have different funding requirements and profitability and have strategic pricing at both the product and individual customer level (for example, through bonus or conditional savings rates), which “make[s] retail deposit rates opaque and add complexity for consumers engaging in the market”. It also makes it hard for savers to be able to compare savings accounts on comparable products.

Moreover, the inquiry found that banks were not able to easily identify how many of their customers had missed out on bonus interest or which specific condition they failed to meet.

While bonus offers and introductory interest rates are commonly used by banks to attract customers, the ACCC found that 71 per cent of bonus interest accounts did not receive bonus interest in any given month during the first six months of 2023, on average.

The ACCC found that while bank customers can save more if they meet the conditions of the conditional savings offer/bonus interest, some would be better off if they instead used another savings account offered by the lender.

7 recommendations to improve transparency

To improve the transparency and accessibility of retail deposits, the ACCC put forward seven recommendations to government that could improve the savings space:

• Banks should tell consumers directly when they change interest rates and prompt them to consider switching to a better rate. In the absence of an interest rate change, a prompt should be provided at least annually.
• Banks should alert consumers if they are about to breach bonus interest rate conditions (for example, by withdrawing too much or too often in a given month). If these measures are not voluntarily taken by banks in a “reasonable time frame”, they should be mandated to do so, the ACCC said.
• Banks should “prominently” disclose the base interest rate applicable at the end of the introductory period and outline if a retail deposit product with a better base interest rate is available when promoting its introductory interest rate offer.
• Banks should be required to record and report bonus rate achievement for their products and use this data to consider “the ongoing appropriateness of their bonus interest rate products”.
• There should be continued monitoring and reporting of prices and competition in the retail deposits market to provide “much greater transparency to consumers and evidence to policymakers on prices and competition in the retail deposits market”.
• Comparison websites should be more transparent about any commercial arrangement they have with banks by “clearly and prominently” displaying which banks they received payment from and what (if any) role these commercial arrangements have in affecting the ratings of that bank’s products.
• The Australian government should review the merits of bank account portability, covering the likely costs, benefits, risks, and opportunities that different approaches to bank account portability would present.

Handing down the report, ACCC chair Gina Cass-Gottlieb said: “Our report has recommended measures to make it easier for customers to get the most out of their savings and move to retail deposit products that better meet their needs.

“While high headline interest rates may seem attractive to customers, they can come attached with conditions that are hard for customers to meet and keep track of.

“We understand that it can be difficult and time-consuming to switch between banks. Bank account portability has the potential to greatly simplify this process for consumers to switch and take advantage of better rates.

“This would not only improve outcomes for Australian consumers, but help drive competition between banks for retail deposits.

“Consumers can find the complexity of the pricing of retail deposit products overwhelming. While comparison websites can offer information across different banks and products, the results consumers see and the way they are ranked can be influenced by commercial arrangements.

“It is important for consumers to be supported by clearer communication and information from banks and comparison websites, so they can receive the full value out of the products they are using.”

Treasury to consider deposits inquiry report alongside Home Loan Price Inquiry report

Responding to the final retail deposit products report on Friday (15 December), Mr Chalmers said that the proposals would be considered in conjunction with the outstanding recommendations of the 2020 ACCC Home Loan Price Inquiry.

Thanking the ACCC and those who contributed to the inquiry for their work, Mr Chalmers said: “Increased interest on savings should be a silver lining from the higher mortgage rates Australians are now experiencing.

“Just as we want Australians to get a good deal on their mortgages, we want savers to get the benefits of higher interest rates.

“We expect banks to treat their customers fairly when it comes to their savings accounts and I have asked Treasury to examine these proposals in conjunction with the outstanding recommendations of the 2020 ACCC Home Loan Price Inquiry.”

Mr Chalmers said that a government response will be released in 2024.

ABA defends banks

The Australian Banking Association has also responded to the deposits inquiry report, defending the banks’ savings rates and pricing.

“2023 has seen highly competitive market forces at work in banking from which consumers are the clear winners,” ABA chief executive Anna Bligh said.

​“In 2023 banks paid record levels of interest to deposit holders. In fact, throughout this year banks have paid more interest on deposits across retail, business, and institutional accounts than they have received from mortgages.”​

Ms Bligh added that Australian banks were also passing on more interest to their customers than banks in the United Kingdom, United States, Norway, Canada, and New Zealand.

The ABA CEO went on to flag that there had been record rates of mortgage refinancing happening in recent years, which she said “shows customers are engaged in their finances and actively seeking better rates for them and their families”.

“When Australians want to switch, they do,” she added.

“Over the past two years, more Australians have changed their mortgage provider than ever before, with nearly 850,000 mortgages refinanced from one lender to another.”

Ms Bligh noted that there were more than 900 transaction and savings deposit products available to Australian consumers, banks understand that at times some consumers may struggle to decide what products are best for them.

According to the ABA, banks are “always focused on making improvements to product offerings in the best interest[s] of their customers”.

The ABA said it would consider each of the recommendations of the ACCC report and “look[ed] forward to participating in Treasury’s consultation in 2024 to consider the recommendations in more detail”.

The completion of the retail deposits inquiry marked the end of the ACCC’s specifically funded financial services competition program. The funding was discontinued in the 2023–24 budget.

However, the ACCC has said it will continue to investigate allegations of anti-competitive conduct in the financial services sector, as part of its economy-wide remit.

[Related: Albanese government to respond to Home Loan Price Inquiry]